Estimating empirical marginal adjustment cost function: a power series approach
Muhammad Nazmul Khan ()
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Muhammad Nazmul Khan: New York University
Empirical Economics, 2022, vol. 63, issue 6, No 14, 3185-3210
Abstract:
Abstract Using insights obtained from Newey’s (1994) series estimator and a novel restatement of the q-theory that additively separates the marginal adjustment cost term in the canonical model, I model and estimate the shape of the marginal adjustment cost function. I discuss the issues in specification and identification in details, focusing particularly on the misspecification due to the q-ratio being an insufficient statistic for determining investment. The function recovered from the Indian 2014 WBES data can explain both lumpy and serially correlated investment.
Keywords: Cross-sectional model; Firm behavior; Adjustment cost; Polynomial regression (search for similar items in EconPapers)
JEL-codes: C21 D21 E22 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00181-022-02232-6
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