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Time-To-Build and Convex Adjustment Costs
Author:
Ms. Petya Koeva Brooks
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Series:
IMF Working Papers
Volume/Issue:
Volume 2001: Issue 009
Language:
English
Publication Date:
01 Jan 2001
DOI:
https://doi.org/10.5089/9781451842593.001
ISBN:
9781451842593
ISSN:
1018-5941
Pages:
23
Keywords:
WP; capital stock; structural equation; Time-to-build; investment; investment equation; investment model; Compustat firm; optimization problem; investment process; investment rate; investment path; investment persistence; investment literature; Stocks; Estimation techniques; Manufacturing; Transportation; Bonds
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund