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Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms

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Author Info
Charles Himmelberg (Federal Reserve Bank of New York)
Alessandra del Boca (Università di Brescia)
Marzio Galeotti (Università di Milano)
Paola Rota (Università di Brescia)

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Abstract

“Time to build” models of investment expenditures play an important role in many traditional and modern theories of the business cycle, especially for explaining the dynamic propagation of shocks. We estimate the structural parameters of a time-to-build model using firm-level investment data on equipment and structures. For equipment expenditures, we find no evidence of time-to-build effects beyond one period. For structures, by contrast, there is clear evidence of time to build in the range of 2-3 years. The contrast between equipment and structures is intuitively reasonable and consistent with previous results. The estimates for structures also indicate that initial-period expenditures are low, and increase as projects near completion. These results provide empirical support for including “time to plan” effects for investment in structures. More generally, these results suggest a potential source of specification error for Q models of investment and production-based asset pricing models that ignore the time required to plan, build and install new capital.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.54.

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Date of creation: Apr 2005
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Handle: RePEc:fem:femwpa:2005.54

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Related research
Keywords: Investment expenditures; Panel data; Italian firms; Time to build;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models

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References listed on IDEAS
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  2. Lawrence J. Christiano & Richard M. Todd, 1996. "Time to plan and aggregate fluctuations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-27. [Downloadable!]
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  20. Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November. [Downloadable!] (restricted)
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  21. Altug, Sumru, 1993. "Time-to-Build, Delivery Lags, and the Equilibrium Pricing of Capital Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 301-19, August. [Downloadable!] (restricted)
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