Investment behavior in dynamic computable general equilibrium models for transition economies
Daniel Piazolo
No 879, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)
Abstract:
This paper suggests a method of approximating the development of investment in transition economies through an amendment of the standard adjustment cost formulation for investment within dynamic Computable General Equilibrium (CGE) models. Letting adjustment cost depend on the difference between the investment levels of two periods (rather than only on the gross investment ratio) leads to an investment behavior of the representative household that resembles the observed time paths of investment in transition countries. In contrast to standard adjustment costs, which predict a sharp rise in investment due to the high marginal productivity of each unit of capital after a capital shock, augmented adjustment costs lead to a gradual rise in investment.
Keywords: Computable General Equilibrium Model; Transition; Adjustment Costs; Investment Behavior (search for similar items in EconPapers)
JEL-codes: D58 P20 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (1)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:879
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