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Unifying time-to-build theory

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Abstract

Several contributions have recently reconsidered the role of the time to build assumption in explaining some relevant stylized facts. In this paper, the similarities and differences which may emerge when the time to build structure of capital is introduced in a continuous or discrete time framework are studied and enlightened. The most striking difference lies in the dimensionality of the two frameworks, which is always finite in discrete but infinite in continuous time. Then, the deterministic version of the traditional time to build model developed by Kydland and Prescott is presented, and it is shown how the typical time to build model setup in continuous time can be obtained. Moreover, the richest dynamics in continuous time is investigated and, more importantly, it is shown that the predictions in terms of capital, output, and consumption behavior are not signi¯cantly di®erent from its discrete version once the economy is calibrated properly.

Suggested Citation

  • Mauro Bambi, 2008. "Unifying time-to-build theory," CER-ETH Economics working paper series 08/98, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:08-98
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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    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. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    4. Asea, Patrick K. & Zak, Paul J., 1999. "Time-to-build and cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1155-1175, August.
    5. Boucekkine, Raouf & Licandro, Omar & Puch, Luis A. & del Rio, Fernando, 2005. "Vintage capital and the dynamics of the AK model," Journal of Economic Theory, Elsevier, vol. 120(1), pages 39-72, January.
    6. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
    7. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    8. Paul Gomme & Finn E. Kydland & Peter Rupert, 2001. "Home Production Meets Time to Build," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1115-1131, October.
    9. Edge, Rochelle M., 2007. "Time-to-build, time-to-plan, habit-persistence, and the liquidity effect," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1644-1669, September.
    10. Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, vol. 80(1), pages 14-59, May.
    11. Adams, James D, 1990. "Fundamental Stocks of Knowledge and Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 673-702, August.
    12. Montgomery, Michael R., 1995. "'Time-to-build' completion patterns for nonresidential structures, 1961-1991," Economics Letters, Elsevier, vol. 48(2), pages 155-163, May.
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    Cited by:

    1. M. Bambi & G. Fabbri & F. Gozzi, 2012. "Optimal policy and consumption smoothing effects in the time-to-build AK model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 635-669, August.
    2. Mauro Bambi & Cristina Girolami & Salvatore Federico & Fausto Gozzi, 2017. "Generically distributed investments on flexible projects and endogenous growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(2), pages 521-558, February.
    3. Gori, Luca & Guerrini, Luca & Sodini, Mauro, 2015. "A continuous time Cournot duopoly with delays," MPRA Paper 62300, University Library of Munich, Germany.
    4. repec:spr:joptap:v:173:y:2017:i:2:d:10.1007_s10957-017-1073-8 is not listed on IDEAS
    5. Gómez Manuel A., 2014. "Discrete Versus Continuous Time in an Endogenous Growth Model with Durable Consumption," Mathematical Economics Letters, De Gruyter, vol. 2(3-4), pages 1-9, November.

    More about this item

    Keywords

    Discrete and continuous time; time-to-build; mixed functional differential equa- tions.;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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