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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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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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Cited by:
  1. Fabio Verona, 2011. "Lumpy investment in sticky information general equilibrium," CEF.UP Working Papers, Universidade do Porto, Faculdade de Economia do Porto 1102, Universidade do Porto, Faculdade de Economia do Porto.
  2. John Van Reenen & Nick Bloom & Steve Bond, 2006. "Uncertainty and investment dynamics," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2645, London School of Economics and Political Science, LSE Library.
  3. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2013/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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