Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application
AbstractThis paper studies capital adjustment at the establishment level. Our goal is to characterize capital adjustment costs, which are important for understanding both the dynamics of aggregate investment and the impact of various policies on capital accumulation. Our estimation strategy searches for parameters that minimize ex post errors in an Euler equation. This strategy is quite common in models for which adjustment occurs in each period. Here, we extend that logic to the estimation of parameters of dynamic optimization problems in which non-convexities lead to extended periods of investment inactivity. In doing so, we create a method to take into account censored observations stemming from intermittent investment. This methodology allows us to take the structural model directly to the data, avoiding time-consuming simulation based methods. To study the effectiveness of this methodology, we first undertake several Monte Carlo exercises using data generated by the structural model. We then estimate capital adjustment costs for U.S. manufacturing establishments in two sectors.
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Bibliographic InfoPaper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 10-02.
Length: 33 pages
Date of creation: Jan 2010
Date of revision:
Other versions of this item:
- Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2010. "Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application," Economics Working Papers ECO2010/21, European University Institute.
- Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2010. "Euler-equation estimation for discrete choice models: a capital accumulation application," Research Working Paper RWP 10-04, Federal Reserve Bank of Kansas City.
- Russell Cooper & John C. Haltiwanger & Jonathan L. Willis, 2010. "Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application," NBER Working Papers 15675, National Bureau of Economic Research, Inc.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-13 (All new papers)
- NEP-DCM-2010-02-13 (Discrete Choice Models)
- NEP-DGE-2010-02-13 (Dynamic General Equilibrium)
- NEP-ECM-2010-02-13 (Econometrics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application
by Christian Zimmermann in NEP-DGE blog on 2010-02-15 18:13:04
- Yashiv, Eran, 2011. "The Joint Behavior of Hiring and Investment," CEPR Discussion Papers 8237, C.E.P.R. Discussion Papers.
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- Yashiv, Eran, 2012. "Frictions and the Joint Behavior of Hiring and Investment," IZA Discussion Papers 6636, Institute for the Study of Labor (IZA).
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