Adjustment Costs in Factor Demand
AbstractThis study discusses the nature of adjustment costs, which underpin the dynamic theory of input demand. We examine the implications of the conventional assumption that they are quadratic-symmetric. A recent rapidly-growing literature based on microeconomic data shows that this assumption is inferior to many alternatives. We demonstrate the importance of this new knowledge for predicting macroeconomic fluctuations in employment and investment. We indicate its relevance for constructing general equilibrium simulation models, drawing inferences about the likely impacts of labour market and investment policies, and analysing firms’ dynamic behaviour in factor markets.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1371.
Date of creation: May 1996
Date of revision:
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Other versions of this item:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
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