Optimal Stabilization Rules in a Stochastic Model of Investment with Gestation Lags
AbstractThis paper considers the problem of calculating optimal policy rules to stabilize fluctuations in investment in an economy where firms' investment behavior can be described by a dynamic optimization model. In the optimization model, the dynamics of investment are generated by heterogeneous gestation lags between the start and completion of capital projects, rather than by adjustment costs in the installation of capital. A procedure is derived for calculating policy rules for an arbitrary autoregressive process generating fluctuations in firms sales. Through stochastic simulation we investigate the effects of using certain suboptimal policy rules in cases where there are constraints against using the optimal rules.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1225.
Date of creation: Nov 1983
Date of revision:
Publication status: published as Taylor, John B. "Optimal Stabilization Rules in a Stochastic Model of Investments with Gestation Lags." Studies in Econometrics, Time Series, & Multivariate Statistics, ed. by Samuel Karlin, Takeshi Amemiya, Leo Goodman, (Academic Press, 1983), pp. 207-226.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John B. Taylor, 1982. "The Swedish Investment Funds System as a Stabilization Rule," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 57-106.
- Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198 National Bureau of Economic Research, Inc.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Fumio Hayashi, 1981.
"Tobin's Marginal q and Average a : A Neoclassical Interpretation,"
457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
- Chow, Gregory C., 1980. "Econometric policy evaluation and optimization under rational expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 47-59, May.
- Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
- Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.