Time-to-Build and Convex Adjustment Costs

 
Author/Editor: Koeva Brooks, Petya
 
Publication Date: January 01, 2001
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper incorporates time-to-build into the standard investment model with convex adjustment costs. The empirical Euler equation is estimated using a U.S. firm-level panel from Compustat. In spite of the introduction of time-to-build, the magnitude of the implied adjustment costs is unrealistically high. Exploiting another approach, I test directly the restrictions imposed by time-to-build on the investment equation. The results indicate that these restrictions cannot be rejected for five of the sixteen industries in the sample. Finally I show that time-to-build can explain approximately one-third of the variation in persistence of structure investment across four-digit industries.
 
Series: Working Paper No. 01/9
Subject(s): Investment | Economic models | United States

Author's Keyword(s): Time-to-build | investment
 
English
Publication Date: January 01, 2001
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0092001 Pages: 22
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