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Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application

Russell Cooper, John Haltiwanger and Jonathan Willis ()

No 15675, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies capital adjustment at the establishment level. Our goal is to characterize capital adjustment costs, which are important for understanding both the dynamics of aggregate investment and the impact of various policies on capital accu- mulation. Our estimation strategy searches for parameters that minimize ex post errors in an Euler equation. This strategy is quite common in models for which adjustment occurs in each period. Here, we extend that logic to the estimation of parameters of dynamic optimization problems in which non-convexities lead to extended periods of investment inactivity. In doing so, we create a method to take into account censored observations stemming from intermittent investment. This methodology allows us to take the structural model directly to the data, avoiding time-consuming simulation- based methods. To study the effectiveness of this methodology, we first undertake several Monte Carlo exercises using data generated by the structural model. We then estimate capital adjustment costs for U.S. manufacturing establishments in two sectors.

JEL-codes: C15 C24 C25 E22 (search for similar items in EconPapers)
Date: 2010-01
Note: EFG
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Related works:
Working Paper: Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application (2010) Downloads
Working Paper: Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application (2010) Downloads
Working Paper: Euler-equation estimation for discrete choice models: a capital accumulation application (2010) Downloads
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