Investment Adjustment Costs: An Empirical Assessment
Hashmat Khan (hashmatkhan@cunet.carleton.ca) and
Charlotta Groth (charlotta.groth@bankofengland.co.uk)
Additional contact information
Charlotta Groth: Bank of England, http://www.bankofengland.co.uk/Pages/home.aspx
No 07-08, Carleton Economic Papers from Carleton University, Department of Economics
Abstract:
We evaluate empirical evidence for costs that penalize changes in investment using US industry data. In aggregate models, such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena. We consider a general adjustment cost structure which nests both investment adjustment costs and the traditional capital adjustment costs as special cases. The estimated weight on the former is close to zero for all the industries. When only the investment adjustment cost structure is considered, the estimates of the adjustment cost parameter imply an elasticity of investment with respect to the shadow price of capital fifteen times larger than estimates based on aggregate data. Our results suggest that from a disaggregated empirical perspective it remains di±cult to motivate and interpret the investment friction considered in recent macroeconomic models.
Keywords: Investment adjustment costs; capital adjustment cost (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-05, Revised 2010-12
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Citations: View citations in EconPapers (49)
Published: Revised version in Journal of Money, Credit and Banking, Vol. 42, No. 8 (December 2010), pp. 1469–1494
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