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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.
    7. Cummins, Jason G. & Hassett, Kevin A., 1992. "The Effects of Taxation on Investment: New Evidence from Firm Level Panel Data," National Tax Journal, National Tax Association, vol. 45(3), pages 243-51, September.
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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. 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.
    5. 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.
    6. World Bank, 2003. "Azerbaijan : Public Expenditure Review," World Bank Publications - Reports 13825, The World Bank Group.
    7. Charlotta Groth & Hashmat Khan, 2007. "Investment adjustment costs: evidence from UK and US industries," Bank of England working papers 332, Bank of England.

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