Major Aspects of Saving and Investments

difference between ex ante and ex post investment

However, the change in national income will be greater than the change in investment. So, for both firms and the economy, ex-ante and ex-post investments are equally important to be taken into the account. Ex-ante investment refers to the investment that enterprises and planners in the economy wish to make at the start of a period. The actual or realized investment, on the other hand,  Ex-post or actual investment is the measurement of a time (e.g., a year) after the fact, when more investment is required. It should be emphasized that Keynes included stocks of unsold products in his investment calculations. To put it another way, an ex-ante investment is one that is planned or wanted before it is made, whereas an ex-post investment is one that is made after it has been made.

Are ex-post savings and ex-post investment always equal?

Ex-post investment refers to the realised or actual investment in an economy during a year. Ex-post or actual investment is the sum total of planned investment and unplanned investment. It must be noted that ex-post saving and ex-post investment are equal at all levels of income.

For the telecommunications industry, the Group (2016) estimates a cost of € 660bn to deploy fiber networks in the EU27, and 25 years needed to complete the investment. The main idea was to develop retail market competition to benefit final consumers with lower prices, considering that the infrastructure was, in most cases, already in place and only had to be maintained. This means that, in general, the banks hold the key position in the
transition from a lower to a higher scale of activity. If they refuse to relax,
the growing congestion of the short-term loan market or of the new issue market,
as the case may be, will inhibit the improvement, no matter how thrifty the
public purpose [p.669] to be out of their future
incomes. On the other hand, there will always be exactly enough ex-post
saving to take up the ex-post investment and so release the finance which the
latter had been previously employing.

Paper statistics

Second, it reduces the incumbents investment incentives, and as a consequence, it can lead to lower coverage than in the benchmark (total coverage distortion). This happens in particular, when the level of demand uncertainty is high. We show that when the total coverage distortion is sufficiently strong, ex-post co-investment decreases welfare, relative to the ex-ante benchmark. Broadly speaking,
therefore, the rate of interest relevant to ex-ante investment is the rate of
interest determined by the current stock of money and the current
state of liquidity preferences at the date when the finance required by the
investment decisions has to be arranged. So far, no modification is required in
the analysis which I have previously expounded. According to Prof. Ohlin, the rate of interest depends on the interaction at
the margin between the supply of new credit due to ex-ante saving and the demand
for it arising out of ex-ante investment.

On the other hand, closing value is taken as the current market price or the price investors are willing to pay for acquiring that asset. The government will pass further policy changes to keep inflation under control. Since the event will take place in the future, it is unknown how the economy will perform. The expected result is a benchmark for comparing the predictions with the actual outcomes.

Ex-Ante and Ex-Post Investment

After this, an evaluation of the changes in the value and the revenue generated by the asset is done. This method presents the actual outcomes of the company based on historical data. Alternatively, if the introduction of policy resulted in price hikes in the future, then the policies introduced by the government were not up to the mark. Ex-post saving refers to actually organized saving in an economy during the year. In this research note, we propose a Brinson-style attribution scheme that can be used to quantify the effects.

However, they assume that coordination at the investment level directly implies reduced competition in the areas covered. They do not consider an ex-post agreement and the distortions it would cause. New technological trends in network industries have recently questioned the role of this regulatory approach. In several difference between ex ante and ex post investment industries, existing infrastructures should not be simply maintained; they must be replaced by new advanced networks. In the energy sector, the International Energy Agency (2010) estimates investment needs in Europe to create new future-proof infrastructures – the so-called smart grids – to be around € 480bn.


We show that this may make investment unprofitable, and we then consider realistic policy measures to reestablish investment incentives. In a given state of expectation both
the active and the passive demands depend on the rate of interest. So sometimes
does the supply; but not necessarily, for the banking system may aim at the
quantitative regulation of money without much regard to the rate. In any case,
given the state of expectation of the public and the policy of the banks, the
rate of interest is that rate at which the demand and supply of liquid resources
are balanced. In the main the flow
of new finance required by current ex-ante investment is provided by the finance
released by current ex-post investment. When the flow of investment is at a
steady rate, so that the flow of ex-ante investment is equal to the flow of
ex-post investment, the whole of it can be provided in this way without any
change in the liquidity position.

  • As a result, an economy’s real investment is the sum of planned and unanticipated investments.
  • Unsupervised Learning is a Security, AI, and Meaning-focused newsletter & podcast that looks at how best to thrive as humans in a post-AI world.
  • He has compelled
    me to attend to an important link in the causal chain which I had previously
    overlooked, and has enabled me to make an important improvement in my analysis;
    and as regards the difference which still remains between us, I do not yet
    abandon the prospect of convincing him.

It’s strange how people incorporate obscure language into their repertoire without knowing what it means, and I find that outside of deeply intellectual (both pseudo and legitimate) circles, these terms are almost always misused. It is imaginary (intended), in which a firm assumes the level of investment on its own. Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.

Recently Viewed Questions of Class 12 Macro Economics

Second, we show that to correct the total coverage distortion, one should implement co-investment options in areas with moderate cost to be covered and a risk premium in the most outlying and costlier areas. Using a numerical example, we show that introducing such a combination of ex-ante and ex-post remedies can increase total welfare, compared to the outcome under ex-post co-investment. Ex-post yield differs from ex-ante yield because it represents actual values, essentially what investors earn rather than estimated values.

  • Alternatively, if the introduction of policy resulted in price hikes in the future, then the policies introduced by the government were not up to the mark.
  • However, the option reduces (but does not fully eliminate) the coverage distortion by making investment more attractive for the incumbent.
  • Similarly, ex-ante investment refers to the amount of investment that businesses plan (or expect) to make during a time, whereas ex-post investment refers to the amount of investment that firms have actually made at the conclusion of the period.
  • According to recent OECD data, as of June 2019, fiber-based connections made up only 27% of the total number of broadband connections in the OECD.1 In Europe, the diffusion of ultra-fast broadband is higher than the OECD average, but still far from reaching the entire EU population.

What is the difference between ex-ante and ex post perspective?

Ex ante analyses employ projections and probabilities to gauge an asset's value and whether it's worth it for financial experts to invest in it. In contrast, ex post analyses often include the current market value of an asset, without considering how much an investor paid for it.

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