How non-traded goods may generate quasi-quadratic costs for capital adjustment

Kerk L. Phillips

Economics Letters, 2015, vol. 127, issue C, 24-26

Abstract: This paper shows that a two-tiered production structure with both traded and non-traded intermediate goods and non-traded final goods can generate a cost of capital adjustment that is very similar to the quadratic adjustment cost often assumed in single good macroeconomic models. This implies that while a quadratic loss function may seem like an ad hoc adjustment, it can be rationalized by sound theory from a more detailed model.

Keywords: Nontraded goods; Adjustment costs; Quadratic; Capital accumulation (search for similar items in EconPapers)
JEL-codes: E22 F10 F47 (search for similar items in EconPapers)
Date: 2015
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Working Paper: How Non-traded Goods May Generate Quasi-quadratic Costs for Capital Adjustment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:127:y:2015:i:c:p:24-26

DOI: 10.1016/j.econlet.2014.12.028

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