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Adjustment costs and time-to-build in factor demand in the U.S. manufacturing industry

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Author Info

  • Palm, Franz C.

    (Maastricht University)

  • Peeters, H.M.M.

    (Maastricht University)

  • Pfann, G.A.

    (Maastricht University)

Abstract

In order to explain cyclical behavior of factor demand, the static neoclassical model of the firm has been extended to include either adjustment costs (e.g. Lucas (1967) or time-to-build considerations in Kydland and Prescott (1982). This paper presents an intertemporal factor demand model which accounts for adjustment costs and gestation lags. The closed form solution of the model is a highly restricted vector ARMA-process that is estimated using quarterly data for the manufacturing industry in the U.S., 1960-1988. The main conclusion is that both sources of dynamics of factor demand are identifiable and found to be empirically of importance.

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Bibliographic Info

Paper provided by Maastricht University in its series Open Access publications from Maastricht University with number urn:nbn:nl:ui:27-6030.

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Date of creation: 1993
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Publication status: Published in Empirical economics (1993) v.18, p.639-371
Handle: RePEc:ner:maastr:urn:nbn:nl:ui:27-6030

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Web page: http://www.maastrichtuniversity.nl/web/Home.htm

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Cited by:
  1. Peeters, Marga, 1998. "Persistence, asymmetries and interrelation in factor demand," MPRA Paper 23864, University Library of Munich, Germany.
  2. Tsoukalas, John D., 2011. "Time to build capital: Revisiting investment-cash-flow sensitivities," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1000-1016, July.
  3. Jonathan N. Millar & Stephen D. Oliner & Daniel E. Sichel, 2012. "Time-to plan lags for commercial construction projects," Finance and Economics Discussion Series 2012-34, Board of Governors of the Federal Reserve System (U.S.).
  4. Palm, Franz C. & Peeters, Marga & Pfann, Gerard A., 1993. "The dynamics of investment and labour demand: Theoretical issues and an application to the Dutch manufacturing industry," MPRA Paper 33042, University Library of Munich, Germany.
  5. Kölling, Arnd, 1998. "Dynamische Arbeitsnachfrage und asymmetrisches Anpassungsverhalten in der Bundesrepublik Deutschland : eine Untersuchung mit Daten aus dem IAB-Betriebspanel (Dynamic labour demand and asymmetrical adj," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 31(4), pages 637-647.
  6. Charles Himmelberg & Alessandra del Boca & Marzio Galeotti & Paola Rota, 2005. "Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms," Working Papers 2005.54, Fondazione Eni Enrico Mattei.

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