Investment behavior in dynamic computable general equilibrium models for transition economies
AbstractThis 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 InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 879.
Date of creation: 1998
Date of revision:
Computable General Equilibrium Model; Transition; Adjustment Costs; Investment Behavior;
Find related papers by JEL classification:
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
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