How Non-traded Goods May Generate Quasi-quadratic Costs for Capital Adjustment

Kerk L. Phillips
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Kerk L. Phillips: Department of Economics, Brigham Young University

No 2014-07, BYU Macroeconomics and Computational Laboratory Working Paper Series from Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory

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)
Pages: 9 pages
Date: 2014-08
New Economics Papers: this item is included in nep-ger, nep-mac and nep-opm
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Published in Economics Letters, forthcoming

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https://docs.google.com/file/d/0B6KGaihAO5TJOVZEMTVYNGR0aWc/edit First version, 2014 (application/pdf)

Related works:
Journal Article: How non-traded goods may generate quasi-quadratic costs for capital adjustment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:byu:byumcl:201407

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