Finance and Economics Discussion Series (FEDS)
August 1998
Adjustment Costs of Investment in General Equilibrium: Analytic Results
Jinill Kim
Abstract:
It has been widely known that a neoclassical growth model with sufficient increasing returns in production may feature an indeterminate steady state. This note shows how investment adjustment costs increase the required degree of increasing returns for indeterminacy to arise. We also argue that sector-specific externalities are observationally equivalent to negative adjustment costs.
Full paper (169 KB Postscript)Keywords: Investment adjustment costs, identification, persistence, volatility,constant relative risk aversion, elastic labor supply
PDF: Full Paper
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