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Fixed Costs Of Adjustment, Coordination, And Industry Investment

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  • Joanne M. Doyle
  • Toni M. Whited

Abstract

We test whether smooth industry-level investment dynamics result from explicit aggregation of asynchronous and possibly lumpy firm-level investment. We compare the deviations of optimal from actual firm behavior across industries categorized by their ratios of idiosyncratic uncertainty to the sum of idiosyncratic and aggregate uncertainty. The deviations are represented by the residuals of a cointegrating regression that is derived from the firm's first-order condition under no adjustment costs. In support of models with asynchronous firm decisions, we find a significant negative relationship across industries between idiosyncratic uncertainty and the persistence of these residuals. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/003465301753237713
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Bibliographic Info

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

Volume (Year): 83 (2001)
Issue (Month): 4 (November)
Pages: 628-637

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Handle: RePEc:tpr:restat:v:83:y:2001:i:4:p:628-637

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

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Cited by:
  1. 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.
  2. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 391-415.
  3. Verona, Fabio, 2012. "Lumpy investment in sticky information general equilibrium," IMFS Working Paper Series 55, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.

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