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Unifying time-to-build theory

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Abstract

Several contributions have recently reconsidered the role of the time to build assumption in explaining some relevant stylized facts. In this paper, the similarities and differences which may emerge when the time to build structure of capital is introduced in a continuous or discrete time framework are studied and enlightened. The most striking difference lies in the dimensionality of the two frameworks, which is always finite in discrete but infinite in continuous time. Then, the deterministic version of the traditional time to build model developed by Kydland and Prescott is presented, and it is shown how the typical time to build model setup in continuous time can be obtained. Moreover, the richest dynamics in continuous time is investigated and, more importantly, it is shown that the predictions in terms of capital, output, and consumption behavior are not signi¯cantly di®erent from its discrete version once the economy is calibrated properly.

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Bibliographic Info

Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 08/98.

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Length: 23 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:eth:wpswif:08-98

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Keywords: Discrete and continuous time; time-to-build; mixed functional differential equa- tions.;

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  1. Montgomery, Michael R., 1995. "'Time-to-build' completion patterns for nonresidential structures, 1961-1991," Economics Letters, Elsevier, vol. 48(2), pages 155-163, May.
  2. Adams, James D, 1990. "Fundamental Stocks of Knowledge and Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 673-702, August.
  3. R. Boucekkine & F. del Rio & O. Licandro & Luis A. Puch, 2000. "Vintage Capital and the Dynamics of the AK Model," Econometric Society World Congress 2000 Contributed Papers 0436, Econometric Society.
  4. Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Working Papers 97-28, Centre de Recherche en Economie et Statistique.
  5. Patrick Asea & Paul J. Zak, 1997. "Time-to-Build and Cycles," UCLA Economics Working Papers 767, UCLA Department of Economics.
  6. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  7. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  8. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  9. Paul Gomme & Finn E. Kydland & Peter Rupert, 2001. "Home Production Meets Time to Build," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1115-1131, October.
  10. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc.
  11. Casares, Miguel, 2006. "Time-to-build, monetary shocks, and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1161-1176, September.
  12. Edge, Rochelle M., 2007. "Time-to-build, time-to-plan, habit-persistence, and the liquidity effect," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1644-1669, September.
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Cited by:
  1. Mauro BAMBI & Giorgio FABBRI & Fausto GOZZI, 2010. "Optimal policy and consumption smoothing effects in the time-to-build AK model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010029, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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