The dynamics of investment and labour demand: Theoretical issues and an application to the Dutch manufacturing industry
AbstractLucas' (1967) adjustment costs model and Kydland and Prescott's (1982) time-to-build model induce mutually exclusive time-series properties that can be recovered from data. This paper investigates three variants of a theoretical model which give insight into the parameter restrictions implied by each of the two sources of dynamics separately. The variants, which simultaneously determine the interrelated demand for capital structures, equipment and labour, are analyzed using quarterly Dutch manufacturing data for the period 1971-1990. In a model with gestation lags, the additional dynamics induced by adjustment costs are not significant. This is not surprising since the economic interpretation of adjustment costs in addition to time-to-build is not obvious. Non-nested hyotheses tests, however, show that the two specifications imply mutually exclusieve time series properties which are statistically significant.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 33042.
Date of creation: Sep 1993
Date of revision:
time-to-build; adjustment costs; capital; labour;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
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