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Resuscitating Time-to-Build

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  • David O Lucca

    (Board of Governors of the Federal Reserve System)

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    Abstract

    A novel specification of the time-to-build (TTB) assumption is presented where firms invest in many projects that have complementarities, and the duration of the investment projects is uncertain. The model yields to a gradual (hump-shaped) response of investment to shocks, and it is shown to be equivalent, up to first-order linearization, to investment adjustment cost models where the cost of adjustment directly depends on the change in investment levels. The paper discusses how the new TTB specification is consistent with empirical features of investment decisions both at the aggregate and more disaggregated levels.

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    File URL: http://www.economicdynamics.org/meetpapers/2007/paper_909.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 909.

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    Date of creation: 2007
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    Handle: RePEc:red:sed007:909

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    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    1. Sumru Altug, 1986. "Time to build and aggregate fluctuations: some new evidence," Working Papers 277, Federal Reserve Bank of Minneapolis.
    2. Casares, Miguel, 2006. "Time-to-build, monetary shocks, and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1161-1176, September.
    3. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Janice C. Eberly & Sergio Rebelo & Nicolas Vincent, 2011. "What Explains the Lagged Investment Effect?," NBER Working Papers 16889, National Bureau of Economic Research, Inc.
    2. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2008. "Investment shocks and business cycles," Staff Reports 322, Federal Reserve Bank of New York.
    3. Jung, Yong-Gook, 2013. "An inference about the length of the time-to-build period," Economic Modelling, Elsevier, vol. 33(C), pages 42-54.

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