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On the Nature of Capital Adjustment Costs

Russell W. Cooper and John Haltiwanger

No 7925, NBER Working Papers from National Bureau of Economic Research, Inc

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 the nonlinear relationship between investment and profitability that we uncover in the plant-level data. Our findings indicate that a model which mixes both convex and nonconvex adjustment costs with irreversibility fits the data best.

Date: 2000-09
Note: EFG
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Published as Russell W. Cooper & John C. Haltiwanger, 2006. "On the Nature of Capital Adjustment Costs," Review of Economic Studies, Blackwell Publishing, vol. 73(3), pages 611-633, 07.

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