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.
|Date of creation:||2007|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anderson, Gary & Moore, George, 1985. "A linear algebraic procedure for solving linear perfect foresight models," Economics Letters, Elsevier, vol. 17(3), pages 247-252.
- Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003.
"What Happens After a Technology Shock?,"
NBER Working Papers
9819, National Bureau of Economic Research, Inc.
- Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321-321.
When requesting a correction, please mention this item's handle: RePEc:red:sed007:909. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.