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Capital Adjustment Patterns in Swedish Manufacturing Firms: What Model Do They Suggest?

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  • Carlsson, Mikael

    (Department of Economics)

  • Laséen, Stefan

    ()
    (Monetary Policy Department, Central Bank of Sweden)

Abstract

In this paper we study the capital adjustment process in Swedish manufacturing firms and relate the empirical findings to standard models of firm behavior in the presence of impediments to capital adjustments. We find that (i) an S,s model fits the data well in some, but not all, dimensions. (ii) A model with irreversible capital goes a long way in capturing the salient features of firm-level capital adjustment behavior. (iii) The partial adjustment model generally fails to explain capital adjustment patterns. (iv) The capital accumulation process is a highly volatile and non-persistent process on the firm-level. (v) Firms’ adjustment behavior is asymmetric in that they are more likely to tolerate excess capital than shortages of capital, and, finally, (vi) the estimated adjustment function implies that aggregate investment is relatively unresponsive to aggregate shocks in deep recessions as compared to normal times.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 143.

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Length: 43 pages
Date of creation: 01 Dec 2002
Date of revision:
Publication status: Published in Economic Journal, 2005, pages 969-986.
Handle: RePEc:hhs:rbnkwp:0143

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
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Web page: http://www.riksbank.com/
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Keywords: Investment; Irreversibilities; Lumpiness; Manufacturing;

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References

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  1. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
  2. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers, Center for Economic Studies, U.S. Census Bureau 94-11, Center for Economic Studies, U.S. Census Bureau.
  3. Giuseppe Bertola & Ricardo J. Caballero, 1991. "Irreversibility and Aggregate Investment," NBER Working Papers 3865, National Bureau of Economic Research, Inc.
  4. Caballero, Ricardo J., 1999. "Aggregate investment," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862 Elsevier.
  5. Dufwenberg, Martin & Koskenkyla, Heikki & Sodersten, Jan, 1994. " Manufacturing Investment and Taxation in the Nordic Countries," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 96(3), pages 443-61.
  6. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics, Boston College Department of Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
  7. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262540932, December.
  8. Prakash Loungani & Bharat Trehan, 1997. "Job creation and destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue may2.
  9. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(3), pages 1264-1292, September.
  10. Caballero, Ricardo J, 1994. "Small Sample Bias and Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 52-58, February.
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Cited by:
  1. Sandra Martina Leitner, 2008. "Interrelatedness, Dynamic Factor Adjustment Patterns and Firm Heterogeneity in Austrian Manufacturing," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2008-03, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers, Bank of Finland 18/2013, Bank of Finland.
  3. Lundin, Magnus & Gottfries, Nils & Lindström, Tomas, 2004. "Price and Investment Dynamics: An Empirical Analysis of Plant Level Data," Working Paper Series, Uppsala University, Department of Economics 2004:7, Uppsala University, Department of Economics.
  4. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2013/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  5. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2005. "Lumpy Investments, Factor Adjustments and Productivity," Discussion Papers, Research Department of Statistics Norway 441, Research Department of Statistics Norway.
  6. Carlsson, Mikael, 2004. "Investment and Uncertainty: A Theory-Based Empirical Approach," Working Paper Series, Uppsala University, Department of Economics 2004:17, Uppsala University, Department of Economics.
  7. Bayer, Christian, 2008. "On the interaction of financial frictions and fixed capital adjustment costs: Evidence from a panel of German firms," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(11), pages 3538-3559, November.
  8. Alessandra Del Boca & Marzio Galeotti & Paola Rota, 2003. "Non-convexities in the Adjustment of Different Capital Inputs: A Firm-level Investigation," Working Papers, Fondazione Eni Enrico Mattei 2003.35, Fondazione Eni Enrico Mattei.
  9. Tomat, Gian Maria, 2008. "Modeling the Effects of Financial Constraints on Firm's Investment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, Kiel Institute for the World Economy, vol. 2(9), pages 1-26.
  10. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2009. "Lumpy investments, factor adjustments, and labour productivity," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 104-127, January.

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