Functional equivalence between intertemporal and multisectoral investment adjustment costs

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

Two types of adjustment cost specifications coexist in macroeconomic models with investment: intertemporal adjustment costs which involve a nonlinear substitution between capital and investment in capital accumulation, and multisectoral costs which are captured by a nonlinear transformation between consumption and investment. This paper demonstrates a functional equivalence between these two specifications. One surprising result is that an increase in multisectoral adjustment costs can be equivalent to a decrease in intertemporal adjustment costs, depending upon the size of the intertemporal costs. We then observe that the functional equivalence implies a problem in identifying the two types of adjustment costs and show ways to solve the problem.

Original languageEnglish
Pages (from-to)533-549
Number of pages17
JournalJournal of Economic Dynamics and Control
Volume27
Issue number4
DOIs
Publication statusPublished - 2003 Feb 1
Externally publishedYes

Keywords

  • Functional equivalence
  • Identification
  • Intertemporal adjustment costs
  • Investment adjustment costs
  • Multisectoral adjustment costs

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization

Fingerprint Dive into the research topics of 'Functional equivalence between intertemporal and multisectoral investment adjustment costs'. Together they form a unique fingerprint.

  • Cite this