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Firm-level adjustment costs and aggregate investment dynamics – Estimation on Hungarian data

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Author Info

  • Ádám Reiff

    ()
    (Magyar Nemzeti Bank)

Abstract

This paper uses Hungarian data to estimate the structural parameters of a firm-level investment model with a rich structure of adjustment costs, and analyzes whether non-convex adjustment costs have any effect on the aggregate investment dynamics. The main question addressed is whether aggregate profitability shocks (as a result of monetary policy, for example) lead to different aggregate investment dynamics under non-convex and convex adjustment costs. The main finding is that while non-convex adjustment costs make investment lumpier at the firmlevel, they lead to a more flexible adjustment pattern at the aggregate level. This is because the model is calibrated to have the same proportion of inactive (i.e. non-investing) firms under convex and non-convex adjustment costs, but the average size of new investment of active firms is higher under non-convex adjustment costs.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2010/2.

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Length: 36 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mnb:wpaper:2010/2

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Related research

Keywords: Capital adjustment costs; lumpy investment; irreversible investment; aggregation;

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References

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  1. Andrew B. Abel & Janice C. Eberly, . "A Unified Model of Investment Under Uncertainty," Rodney L. White Center for Financial Research Working Papers 14-93, Wharton School Rodney L. White Center for Financial Research.
  2. Gábor Kátay & Zoltán Wolf, 2004. "Investment Behavior, User Cost and Monetary Policy Transmission - the Case of Hungary," MNB Working Papers 2004/12, Magyar Nemzeti Bank (the central bank of Hungary).
  3. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  4. Coleman Ii, Wilbur John, 1997. "Behavior Of Interest Rates In A General Equilibrium Multisector Model With Irreversible Investment," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 206-227, January.
  5. Aubhik Khan & Julia Thomas, 2002. "Nonconvex factor adjustments in equilibrium business cycle models: Do nonlinearities matter?," Staff Report 306, Federal Reserve Bank of Minneapolis.
  6. Valerie A. Ramey & Matthew D. Shapiro, 1999. "Costly Capital Reallocation and the Effects of Government Spending," NBER Working Papers 6283, National Bureau of Economic Research, Inc.
  7. Bayraktar, Nihal & Sakellaris, Plutarchos & Vermeulen, Philip, 2005. "Real versus financial frictions to capital investment," Working Paper Series 0566, European Central Bank.
  8. Zsolt M. Darvas & András Simon, 2000. "Capital Stock and Economic Development in Hungary," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 197-223, March.
  9. Molnár, László & Skultéty, László, 1999. "A beruházások alakulása 19921998 között
    [The trend in investment between 1992 and 1998]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1041-1058.
  10. Gábor Pula, 2003. "Capital Stock Estimation in Hungary: A Brief Description of Methodolgy and Results," MNB Working Papers 2003/7, Magyar Nemzeti Bank (the central bank of Hungary).
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Cited by:
  1. Balázs Vonnák, 2007. "The Hungarian Monetary Transmission Mechanism: an Assessment," MNB Working Papers 2007/3, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.

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