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Investment and Time to Plan and Build: A Comparison of Structures vs. Equipment in A Panel of Italian Firms

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Author Info

  • Alessandra Del Boca
  • Marzio Galeotti
  • Charles P. Himmelberg
  • Paola Rota

Abstract

"Time-to-build" models of investment expenditures play an important role in many traditional and modern theories of the business cycle, especially for explaining the dynamic propagation of shocks. We estimate the structural parameters of a time-to-build model using annual firm-level investment data on equipment and structures. For expenditures on equipment, we find no evidence of time-to-build effects beyond one year. For expenditures on structures, by contrast, there is clear evidence of such effects in the range of two to three years. The contrast between equipment and structures is intuitively reasonable and consistent with previous results. The estimates for structures also indicate that initial-period expenditures are low and increase as projects near completion. These results provide empirical support for including "time-to-plan" effects for investment in structures. More generally, these results suggest a potential source of specification error for Q models of investment and production-based asset pricing models that ignore the time required to plan, build, and install new capital. (JEL: D24, G31, C33, C34) (c) 2008 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 6 (2008)
Issue (Month): 4 (06)
Pages: 864-889

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Handle: RePEc:tpr:jeurec:v:6:y:2008:i:4:p:864-889

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Cited by:
  1. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2008. "Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles," LEM Papers Series 2008/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Tsoukalas, John D., 2011. "Time to build capital: Revisiting investment-cash-flow sensitivities," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1000-1016, July.
  3. Giovani Dosi & Giorgio Fagiolo & Andrea Roventini & Mauro Napoletano, 2012. "Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model," INET Research Notes 11, Institute for New Economic Thinking (INET).
  4. M. Grazzi & N. Jacoby & T. Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," Working Papers wp869, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Mauro Napoletano & Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2012. "Wage formation investment behavior and growth regimes: an agent-based analysis," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
  6. Jonathan N. Millar & Stephen D. Oliner & Daniel E. Sichel, 2012. "Time-to plan lags for commercial construction projects," Finance and Economics Discussion Series 2012-34, Board of Governors of the Federal Reserve System (U.S.).
  7. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
  8. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09l8sci08kj is not listed on IDEAS

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