Keywords: Investment adjustment costs, identification, persistence, volatility,constant relative risk aversion, elastic labor supply
Abstract: This paper formulates and compares various specifications of investment adjustment
costs in a simple dynamic general-equilibrium
model and studies their implications by showing some analytic results.
One way to introduce adjustment costs is to incorporate them as a
constant elasticity of substitution
between investment and capital in the capital accumulation equation.
Another way is as a nonlinear transformation between consumption and
investment in the national income identity.
We observe that there is a problem in identifying the two types of
adjustment costs and show how to solve the problem. The properties of
persistence and volatility are analytically discussed with an emphasis
on the size of
Full paper (185 KB PDF)
| Full paper (169 KB Postscript)
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Last update: August 26, 1998