Dynamic adjustment cost models with forward-looking behaviour
Abstract
In this paper we propose a new approach for dynamic decision problems where forward-looking agents choose a set of non-stationary variables subject to quadratic adjustment costs. It is assumed that expectations are computed by a cointegrated Vector Equilibrium Correction Model (VEqCM). The role of feedbacks from the decision to the explanatory variables on solution properties and modelling approach is discussed. We show that once the system of interrelated Euler equations stemming from the agent's optimization problem is embedded within the VEqCM, a switching algorithm based on Generalized Least Squares can be used to estimate and test the model. A labour demand model for two Danish manufacturing industries is investigated empirically. Copyright Royal Economic Society 2006Download Info
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Bibliographic Info
Article provided by Royal Economic Society in its journal The Econometrics Journal.
Volume (Year): 9 (2006)
Issue (Month): 1 (03)
Pages: 23-47
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Fanelli, Luca, 2007.
"Present Value Relations, Granger Noncausality, And Var Stability,"
Econometric Theory,
Cambridge University Press, vol. 23(06), pages 1254-1260, December.
- Fanelli, Luca, 2006. "Present value relations, Granger non-causality and VAR stability," MPRA Paper 1642, University Library of Munich, Germany.
- David Aristei & Luca Pieroni, 2007.
"Habits, Complementarities and Heterogenenity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model,"
Working Papers
38, University of Verona, Department of Economics.
- David Aristei & Luca Pieroni, 2010. "Habits, Complementarities and Heterogeneity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(4), pages 428-457, 08.
- Giuseppe Cavaliere & Luca Fanelli & Attilio Gardini, 2006.
"International dynamic risk sharing,"
Quaderni di Dipartimento
1, Department of Statistics, University of Bologna.
- Giuseppe Cavaliere & Luca Fanelli & Attilio Gardini, 2008. "International dynamic risk sharing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(1), pages 1-16.
- Giuseppe Cavaliere & Luca Fanelli & Attilio Gardini, 2009.
"Consumption risk sharing and adjustment costs,"
Economics Bulletin,
AccessEcon, vol. 29(2), pages 1117-1126.
- Fanelli, Luca & Cavaliere, Giuseppe & Gardini, Attilio, 2004. "Consumption risk sharing and adjustment costs," MPRA Paper 1641, University Library of Munich, Germany, revised Nov 2006.
- Fanelli, Luca, 2005.
"Testing the New Keynesian Phillips curve through Vector Autoregressive models: Results from the Euro area,"
MPRA Paper
1617, University Library of Munich, Germany, revised Jan 2007.
- Luca Fanelli, 2008. "Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 53-66, 02.
- Luca Fanelli, 2006. "Testing the New Keynesian Phillips Curve through Vector Autoregressive models : Results from the Euro area," Quaderni di Dipartimento 0, Department of Statistics, University of Bologna.
- Fanelli, Luca, 2008.
"Evaluating the New Keynesian Phillips Curve under VAR-Based Learning,"
Economics Discussion Papers
2008-15, Kiel Institute for the World Economy.
- Fanelli, Luca, 2007. "Evaluating the New Keynesian Phillips Curve under VAR-based learning," MPRA Paper 1616, University Library of Munich, Germany.
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