Optimal Stabilization Rules in a Stochastic Model of Investment with Gestation Lags

John B. Taylor ()

No 1225, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers the problem of calculating optimal policy rules to stabilize fluctuations in investment in an economy where firms' investment behavior can be described by a dynamic optimization model. In the optimization model, the dynamics of investment are generated by heterogeneous gestation lags between the start and completion of capital projects, rather than by adjustment costs in the installation of capital. A procedure is derived for calculating policy rules for an arbitrary autoregressive process generating fluctuations in firms sales. Through stochastic simulation we investigate the effects of using certain suboptimal policy rules in cases where there are constraints against using the optimal rules.

Date: 1984-09
Note: EFG
View list of references

Downloads: (external link)
http://www.nber.org/papers/w1225.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:1225

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w1225
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().