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Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities

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  • Oivind Anti Nilsen

    (University of Bergen)

  • Fabio Schiantarelli

    ()
    (Boston College)

Abstract

The objective of this paper is to investigate if and how capital adjustment departs from the smooth pattern implied by standard model based on convex adjustment costs. Using Norwegian micro data, we start by documenting various aspects of the distribution of investment rates. We then present two pieces of econometric evidence on these issues. First, we estimate a discrete hazard model to determine the probability of having an episode of high investment, conditional on the length of the interval from the last high investment episode and we discuss what the empirical results suggest about the shape of the adjustment cost function. Second, we move beyond this discretization of the investment problem and estimate a switching regression model that allows for the response of the investment rate to fundamentals to differ across regimes. In both cases we investigate the aggregate implications of our results.

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File URL: http://fmwww.bc.edu/EC-P/wp337.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 337..

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Length: 45 pages
Date of creation: 01 Jul 1996
Date of revision: 01 Nov 2000
Handle: RePEc:boc:bocoec:337

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Web page: http://fmwww.bc.edu/EC/
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Keywords: Investment; Irreversibility; Non-Convexity;

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References

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  1. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  2. Cabalero, R.J., 1997. "Aggregaete Investment," Working papers 97-20, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
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  7. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February.
  8. Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 70-89, Summer.
  9. David Card & Daniel Sullivan, 1987. "Measuring the Effect of Subsidized Training Programs on Movements In andOut of Employment," NBER Working Papers 2173, National Bureau of Economic Research, Inc.
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  11. Aubhik Khan & Julia K. Thomas, . "Nonconvex Factor Adjustments in Equilibrium Business Cycle Models: Do Nonlinearities Matter?," GSIA Working Papers 2000-E33, Carnegie Mellon University, Tepper School of Business.
  12. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
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  17. Serven, Luis, 1997. "Irreversibility, Uncertainty and Private Investment: Analytical Issues and Some Lessons for Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 229-68, Supplemen.
  18. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
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  21. repec:fth:coluec:465 is not listed on IDEAS
  22. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March.
  23. Austan Goolsbee & David B. Gross, 1997. "Estimating Adjustment Costs with Data on Heterogeneous Capital Goods," NBER Working Papers 6342, National Bureau of Economic Research, Inc.
  24. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
  25. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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