Unifying time-to-build theory
AbstractSeveral 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 InfoPaper 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.
Length: 23 pages
Date of creation: Oct 2008
Date of revision:
Discrete and continuous time; time-to-build; mixed functional differential equa- tions.;
Find related papers by JEL classification:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-28 (All new papers)
- NEP-CBA-2008-10-28 (Central Banking)
- NEP-DGE-2008-10-28 (Dynamic General Equilibrium)
- NEP-MAC-2008-10-28 (Macroeconomics)
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