Investment appraisal criteria and the impact of low inflation

Quarterly Bulletin 1994 Q3
Published on 01 September 1994

By Andrew Wardlow of the Bank’s Conjunctural Assessment and Projections Division.

An informal inquiry conducted by the Bank earlier this year suggested that firms were being cautious in the rate at which they were reducing their required returns on investment to reflect lower and more stable inflation. This article considers the impact of a return to low inflation on corporate investment decision-making. It looks at the various appraisal criteria employed by firms - and the role they give them in their decision-making - and assesses the significance of firms’ apparent slowness to adjust.

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