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Using a multivariate autoregressive framework, we have found a simple causal structure for the variables of interest q, s, r, and i, which is consistent with our data. As expected from the stock market efficiency hypothesis, q, the stock market one period holding rate of return, is exogenous relative to the other three variables (or Granger causes them). As postulated in the traditional accelerator model of investment, the rate of growth of sales, s, can be also treated as exogenous to the rates of growth of R&D and physical. investment, r and i. Moreover, no strong feed- back interaction is detected between the last two (r and i). Within the simple structure of the extended accelerator model, the substantive conclusion is that R&D and physical investment react very similarly to the growth of the sales and to movements in q; the response of R&D is, however, more stable or less irregular than that of physical investment. Expected demand and expected profitability thus both appear to be important determinants for R&D expenditures and physical investment.

Stock exchanges.