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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)

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:fem:femwpa:2005.54

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

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References

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  1. Sumru Altug, 1986. "Time to build and aggregate fluctuations: some new evidence," Working Papers 277, Federal Reserve Bank of Minneapolis.
  2. Peeters, Marga, 1998. " Persistence, Asymmetries and Interrelation in Factor Demand," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(4), pages 747-64, December.
  3. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  4. Rouwenhorst, K. Geert, 1991. "Time to build and aggregate fluctuations : A reconsideration," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 241-254, April.
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  7. Simon Gilchrist & Charles P. Himmelberg, 1993. "Evidence on the role of cash flow for investment," Finance and Economics Discussion Series 93-7, Board of Governors of the Federal Reserve System (U.S.).
  8. João F. Gomes & Amir Yaron & Lu Zhang, 2006. "Asset Pricing Implications of Firms' Financing Constraints," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1321-1356.
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  11. 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.
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  24. Simon Gilchrist & Charles Himmelberg, 1998. "Investment, Fundamentals and Finance," NBER Working Papers 6652, National Bureau of Economic Research, Inc.
  25. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  26. Petya Koeva Brooks, 2001. "Time-To-Build and Convex Adjustment Costs," IMF Working Papers 01/9, International Monetary Fund.
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Cited by:
  1. Sumit Agarwal & Victor Souphom & Guy Yamashiro, 2008. "The Efficiency of Internal Capital Markets: Evidence from the Annual Capital Expenditure Survey," Working Papers 08-08, Center for Economic Studies, U.S. Census Bureau.

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