| Author/Presenter |
Hashmat Khan (Carleton University) |
| Co-author |
Charlotta Groth (Bank of England) |
| Title |
Investment Adjustment Costs: An Empirical Assessment |
| Abstract |
We evaluate empirical evidence for costs that penalize changes in investment using US industry data. In aggregate models, such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena. We consider a general adjustment cost structure which nests both investment adjustment costs and the traditional capital adjustment costs as special cases. The estimated weight on the former is close to zero for all the industries. When only the investment adjustment cost structure is considered, the estimates of the adjustment cost parameter are small relative to those based on aggregate data, and imply an elasticity of investment with respect to the shadow price of capital fifteen times larger. Our results suggest that from a disaggregated empirical perspective it remains difficult to motivate and interpret the investment friction considered in recent macroeconomic models. |
| Web Link |
http://economics.ca/2007/papers/0207.pdf |