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Resuscitating Time-to-Build

  • David O Lucca

    (Board of Governors of the Federal Reserve System)

Registered author(s):

    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: https://www.economicdynamics.org/meetpapers/2007/paper_909.pdf
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    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
    Contact details of provider: 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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    Web page: http://www.EconomicDynamics.org/society.htm
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    1. Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November.
    2. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What happens after a technology shock?," International Finance Discussion Papers 768, Board of Governors of the Federal Reserve System (U.S.).
    3. Casares, Miguel, 2006. "Time-to-build, monetary shocks, and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1161-1176, September.
    4. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
    5. Uzawa, H, 1969. "Time Preference and the Penrose Effect in a Two-Class Model of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 628-52, Part II, .
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