Adjustment costs and time-to-build in factor demand in the U.S. manufacturing industry
AbstractIn 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 InfoPaper provided by Maastricht University in its series Open Access publications from Maastricht University with number urn:nbn:nl:ui:27-6030.
Date of creation: 1993
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Publication status: Published in Empirical economics (1993) v.18, p.639-371
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Other versions of this item:
- Palm, Franz C & Peeters, H M M & Pfann, G A, 1993. "Adjustment Costs and Time-to-Build in Factor Demand in the U.S. Manufacturing Industry," Empirical Economics, Springer, vol. 18(4), pages 639-71.
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