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Costs of Adjustment, the Aggregation Problem and Investment

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  • Gordon, Stephen

Abstract

This paper looks at the empirical consequences of inappropriately using a representative firm to mimic the aggregate investment decisions of a group of heterogeneous firms faced with costs of adjusting capital inputs. Improper aggregation generates a bias with two important consequences: (1) an apparent insensitivity of the aggregate capital stock to the user cost of capital and (2) predicted responses of the capital stock to shocks that are considerably slower than observed. Both of these consequences are features of available investment equations. Copyright 1992 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 74 (1992)
Issue (Month): 3 (August)
Pages: 422-29

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Handle: RePEc:tpr:restat:v:74:y:1992:i:3:p:422-29

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Lubomir Lizal, 2001. "Does a Soft Macroeconomic Environment Induce Restructuring on the Microeconomic Level during the Transition Period? Evidence from Investment Behavior of Czech Enterprises," Development and Comp Systems, EconWPA 0012010, EconWPA.
  2. Hashmat Khan & Charlotta Groth, 2007. "Investment Adjustment Costs: An Empirical Assessment," Carleton Economic Papers, Carleton University, Department of Economics 07-08, Carleton University, Department of Economics, revised Dec 2010.
  3. George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer, Springer, vol. 21(4), pages 301-328, December.
  4. Varshavsky, Leonid, 2010. "Methodological basis of modeling evolution of markets of products with long life cycle: a study of the civil aircrafts’ market," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 20(4), pages 53-74.
  5. Gorodnichenko, Yuriy, 2008. "Using Firm Optimization to Evaluate and Estimate Returns to Scale," IZA Discussion Papers 3368, Institute for the Study of Labor (IZA).

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