{
  "id": 6309337,
  "title": "The Marginal Efficiency of Investment Equation Interpreted in 2024-26",
  "url": "https://urgent.news/2026/09/08/the-marginal-efficiency-of-investment-equation-interpreted-in-2024-26",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-09-08T18:03:00.000Z",
  "source": {
    "name": "Econbrowser",
    "slug": "econbrowser",
    "url": "https://econbrowser.com/archives/2026/09/the-marginal-efficiency-of-investment-interpreted-in-2024-26"
  },
  "original_language": "en",
  "account": "The Marginal Efficiency of Investment (MEI) equation, as interpreted in 2024-26, reveals intriguing dynamics in the realm of nonresidential fixed investment. The MEI equation, modified by Blanchard, suggests that investment increases with income, akin to an accelerator effect. This concept, when applied to the period of 2024-26, highlights a conundrum: despite rising interest rates, nonresidential fixed investment seems to soar.\n\nOne potential solution to this paradox lies in the idea that the constant 'b0' in the MEI equation is not static. It can be viewed as exogenously changing. This proposition gains substantial support from considering the prospects of Artificial Intelligence (AI) for future profits. By comparing total nonresidential investment to that excluding computers and software, normalized by GDP, a striking trend emerges.\n\nFigure 1, sourced from BEA, Treasury, Fed, and NBER, illustrates this phenomenon. Here, nonresidential fixed investment as a share of GDP (represented in black on the left scale) and nonresidential fixed investment excluding computers and software (depicted in blue on the same scale) both demonstrate a declining trend. Simultaneously, the 10-year Treasury rate (in red on the right scale) and the Fed funds rate (in pink on the same scale) exhibit an upward trajectory.\n\nThis divergence can be attributed to the improved outlook for AI-driven future profits, which bolsters the MEI equation. However, the declining share of nonresidential fixed investment in GDP, excluding computers and software, challenges this narrative. This discrepancy suggests a complex interplay of factors at play, warranting further investigation into the mechanics of MEI during the period of 2024-26.",
  "summary": "In the IS-LM equation, we have the investment function: Where I use the Blanchard modification that lets investment rise with income, kind of an accelerator. How can we reconcile the higher nonresidential fixed investment with higher interest rates, aside from the endogeneity of the Fed funds rate. One is to recognize that b0 is […]",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}