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On the Nature of Capital Adjustment Costs

Russell W. Cooper and John Haltiwanger

Review of Economic Studies, 2006, vol. 73, issue 3, 611-633

Abstract: This paper studies the nature of capital adjustment at the plant level. We use an indirect inference procedure to estimate the structural parameters of a rich specification of capital adjustment costs. In effect, the parameters are optimally chosen to reproduce a set of moments that capture the non-linear relationship between investment and profitability found in plant-level data. Our findings indicate that a model, which mixes both convex and non-convex adjustment costs, fits the data best. Copyright 2006, Wiley-Blackwell.

Date: 2006
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