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Time-To-Build and Convex Adjustment Costs

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  • Ms. Petya Koeva Brooks

Abstract

This paper incorporates time-to-build into the standard investment model with convex adjustment costs. The empirical Euler equation is estimated using a U.S. firm-level panel from Compustat. In spite of the introduction of time-to-build, the magnitude of the implied adjustment costs is unrealistically high. Exploiting another approach, I test directly the restrictions imposed by time-to-build on the investment equation. The results indicate that these restrictions cannot be rejected for five of the sixteen industries in the sample. Finally I show that time-to-build can explain approximately one-third of the variation in persistence of structure investment across four-digit industries.

Suggested Citation

  • Ms. Petya Koeva Brooks, 2001. "Time-To-Build and Convex Adjustment Costs," IMF Working Papers 2001/009, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2001/009
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    References listed on IDEAS

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    6. Ms. Petya Koeva Brooks, 2000. "The Facts About Time: To-Build," IMF Working Papers 2000/138, International Monetary Fund.
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    Cited by:

    1. Charlotta Groth & Hashmat Khan, 2010. "Investment Adjustment Costs: An Empirical Assessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1469-1494, December.
    2. Tsoukalas, John D., 2011. "Time to build capital: Revisiting investment-cash-flow sensitivities," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1000-1016, July.
    3. Jönsson, Kristian, 2005. "Real Exchange Rate and Consumption Fluctuations following Trade Liberalization," Working Paper Series 187, Sveriges Riksbank (Central Bank of Sweden).
    4. Jönsson, Kristian, 2004. "Real Exchange Rate and Consumption Fluctuations following Trade Liberalization," SSE/EFI Working Paper Series in Economics and Finance 568, Stockholm School of Economics, revised 04 Jan 2005.
    5. World Bank, 2003. "Azerbaijan : Public Expenditure Review," World Bank Publications - Reports 13825, The World Bank Group.
    6. Charlotta Groth & Hashmat Khan, 2007. "Investment adjustment costs: evidence from UK and US industries," Bank of England working papers 332, Bank of England.
    7. Charles Himmelberg & Alessandra del Boca & Marzio Galeotti & Paola Rota, 2005. "Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms," Working Papers 2005.54, Fondazione Eni Enrico Mattei.

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