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Estimating empirical marginal adjustment cost function: a power series approach

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  • Muhammad Nazmul Khan

    (New York University)

Abstract

Using insights obtained from Newey’s (1994) series estimator and a novel restatement of the q-theory that additively separates the marginal adjustment cost term in the canonical model, I model and estimate the shape of the marginal adjustment cost function. I discuss the issues in specification and identification in details, focusing particularly on the misspecification due to the q-ratio being an insufficient statistic for determining investment. The function recovered from the Indian 2014 WBES data can explain both lumpy and serially correlated investment.

Suggested Citation

  • Muhammad Nazmul Khan, 2022. "Estimating empirical marginal adjustment cost function: a power series approach," Empirical Economics, Springer, vol. 63(6), pages 3185-3210, December.
    • Handle: RePEc:spr:empeco:v:63:y:2022:i:6:d:10.1007_s00181-022-02232-6
    DOI: 10.1007/s00181-022-02232-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Cross-sectional model; Firm behavior; Adjustment cost; Polynomial regression;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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