Time-To-Build and Convex Adjustment Costs

Author/Editor:

Petya Koeva Brooks

Publication Date:

January 1, 2001

Electronic Access:

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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. 2001/009

Subject:

Bonds Econometric analysis Economic sectors Estimation techniques Financial institutions Manufacturing National accounts Stocks Transportation

English

Publication Date:

January 1, 2001

ISBN/ISSN:

9781451842593/1018-5941

Stock No:

WPIEA0092001

Pages:

23

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