Time-To-Build and Convex Adjustment Costs
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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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