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Investment behavior in dynamic computable general equilibrium models for transition economies

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  • Piazolo, Daniel

Abstract

This paper suggests a method of approximating the development of investment in transition economies through an amendment of the standard adjustment cost formulation for investment within dynamic Computable General Equilibrium (CGE) models. Letting adjustment cost depend on the difference between the investment levels of two periods (rather than only on the gross investment ratio) leads to an investment behavior of the representative household that resembles the observed time paths of investment in transition countries. In contrast to standard adjustment costs, which predict a sharp rise in investment due to the high marginal productivity of each unit of capital after a capital shock, augmented adjustment costs lead to a gradual rise in investment.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 879.

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Date of creation: 1998
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Handle: RePEc:kie:kieliw:879

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Keywords: Computable General Equilibrium Model; Transition; Adjustment Costs; Investment Behavior;

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References

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  1. Zhang, Xiao-guang, 1998. "Modeling Economic Transition: A Two-Tier Price Computable General Equilibrium Model of the Chinese Economy," Journal of Policy Modeling, Elsevier, Elsevier, vol. 20(4), pages 483-511, August.
  2. Breuss, Fritz & Tesche, Jean, 1993. "Hungary in transition: a computable general equilibrium model comparison with Austria," Journal of Policy Modeling, Elsevier, Elsevier, vol. 15(5-6), pages 581-623.
  3. Hare, Paul & Revesz, Tamas & Zalai, Erno, 1993. "Modeling an economy in transition: trade adjustment policies for Hungary," Journal of Policy Modeling, Elsevier, Elsevier, vol. 15(5-6), pages 625-652.
  4. Piazolo, Daniel, 1997. "Trade Integration between Eastern and Western Europe: Policies Follow the Market," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 12, pages 259-297.
  5. Victor Ginsburgh & Michiel Keyzer, 1997. "The structure of applied general equilibrium models," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/1653, ULB -- Universite Libre de Bruxelles.
  6. Deardoff, A.V. & Brown, D.K. & Stern, R.M. & Djankov, S.D., 1995. "An Economic Assessment of the Integration of Czechoslovakia, Hungary, and Poland into the Europan Union," Working Papers, Research Seminar in International Economics, University of Michigan 380, Research Seminar in International Economics, University of Michigan.
  7. Castanheira, Micael & Roland, Gérard, 1996. "Restructuring and Capital Accumulation in Transition Economies: A General Equilibrium Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1372, C.E.P.R. Discussion Papers.
  8. Roberts, Barbara M, 1994. " Calibration Procedure and the Robustness of CGE Models: Simulations with a Model for Poland," Economic Change and Restructuring, Springer, Springer, vol. 27(3), pages 189-210.
  9. Noren, Ronny, 1998. "Industrial Transformation in the Open Economy: A Multisectoral View," Journal of Policy Modeling, Elsevier, Elsevier, vol. 20(1), pages 111-117, February.
  10. Klepper, Gernot & Lorz, Jens Oliver & Stähler, Frank & Thiele, Rainer & Wiebelt, Manfred, 1993. "Empirische allgemeine Gleichgewichts-Modelle: Struktur und Anwendungsmöglichkeiten," Kiel Working Papers, Kiel Institute for the World Economy 595, Kiel Institute for the World Economy.
  11. Braber, M. C. & Cohen, S. I. & Revesz, T. & Zolkiewski, Z., 1996. "Policy modeling under fixed and flexible price regimes: SAM-CGE transitional applications to Poland and Hungary," Journal of Policy Modeling, Elsevier, Elsevier, vol. 18(5), pages 495-529, October.
  12. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 321.
  13. Francois, Joseph & Nordström, Håkan & Shiells, Clinton R., 1996. "Transition Dynamics and Trade Policy Reform in Developing Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1452, C.E.P.R. Discussion Papers.
  14. Gerlinde Sinn & Hans-Werner Sinn, 1994. "Jumpstart: The Economic Unification of Germany," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262691728, December.
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Cited by:
  1. Lúcio Vinhas De Souza, 2006. "A Wider Europe: Trade Relations Between an Enlarged EU and the Russian Federation," Problems of Economic Transition, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 49(2), pages 6-33, June.

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