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| Author: | Caballero, R. J. Engel, E. M. R. A. |
| Title: | Explaining investment dynamics in U.S. manufacturing: A generalized (S,s) approach |
| Journal: | Econometrica
1999 : JUL, VOL. 67:4, p. 783-826 |
| Index terms: | Investment Costs Manufacturing Models USA |
| Freeterms: | Aggregation Adjustment hazard |
| Language: | eng |
| Abstract: | In this paper, a model of aggregate investment is derived building from the lumpy microeconomic behaviour of firms facing stochastic fixed adjustment costs. Instead of the standard sharp (S, s) bands, firms' adjustment policies take the form of a probability of adjustment (adjustment hazard) that responds smoothly to changes in firms' capacity gap. The model has appealing aggregation properties, and yields non-linear aggregate time series processes. Using within and out-of-sample criteria, it is found in this paper that the model performs substantially better than the standard linear models of investment for postwar sectoral U.S. manufacturing equipment and structures investment data. |
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