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Firm-level adjustment costs and aggregate investment dynamics – Estimation on Hungarian data

Author

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  • Ádám Reiff

    (Magyar Nemzeti Bank)

Abstract

This paper uses Hungarian data to estimate the structural parameters of a firm-level investment model with a rich structure of adjustment costs, and analyzes whether non-convex adjustment costs have any effect on the aggregate investment dynamics. The main question addressed is whether aggregate profitability shocks (as a result of monetary policy, for example) lead to different aggregate investment dynamics under non-convex and convex adjustment costs. The main finding is that while non-convex adjustment costs make investment lumpier at the firmlevel, they lead to a more flexible adjustment pattern at the aggregate level. This is because the model is calibrated to have the same proportion of inactive (i.e. non-investing) firms under convex and non-convex adjustment costs, but the average size of new investment of active firms is higher under non-convex adjustment costs.

Suggested Citation

  • Ádám Reiff, 2010. "Firm-level adjustment costs and aggregate investment dynamics – Estimation on Hungarian data," MNB Working Papers 2010/2, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2010/2
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    File URL: http://www.mnb.hu/letoltes/wp-2010-2.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fabio Verona, 2014. "Investment Dynamics with Information Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1627-1656, December.
    2. Balazs Vonnak, 2008. "The Hungarian monetary transmission mechanism: an assessment," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 235-257, Bank for International Settlements.
    3. Péter Bauer & Marianna Endrész, 2017. "Corporate Investment in Hungary – Stylised Facts on Micro Data," MNB Occasional Papers 2017/131, Magyar Nemzeti Bank (Central Bank of Hungary).
    4. Fabio Verona, 2014. "Investment Dynamics with Information Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1627-1656, December.
    5. repec:zbw:bofrdp:2013_018 is not listed on IDEAS

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    More about this item

    Keywords

    Capital adjustment costs; lumpy investment; irreversible investment; aggregation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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