Template-Type: ReDIF-Paper 1.0
Author-Name: Ádám Reiff
Author-X-Name-First: Ádám
Author-X-Name-Last: Reiff
Author-Email: reiffa@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank

Title: Firm-level adjustment costs and aggregate investment dynamics – Estimation on Hungarian data

Abstract: This paper uses Hungarian data to estimate the structural parameters of a firm-level investment model with a rich structure of adjustment costs, and analyzes whether non-convex adjustment costs have any effect on the aggregate investment dynamics. The main question addressed is whether aggregate profitability shocks (as a result of monetary policy, for example) lead to different aggregate investment dynamics under non-convex and convex adjustment costs. The main finding is that while non-convex adjustment costs make investment lumpier at the firmlevel, they lead to a more flexible adjustment pattern at the aggregate level. This is because the model is calibrated to have the same proportion of inactive (i.e. non-investing) firms under convex and non-convex adjustment costs, but the average size of new investment of active firms is higher under non-convex adjustment costs.

Length: 36 pages
Creation-Date: 2010
File-URL: http://www.mnb.hu/letoltes/wp-2010-2.pdf
File-Format: Application/pdf

Number: 2010/2
Classification-JEL: E22
Keywords: Capital adjustment costs, lumpy investment, irreversible investment, aggregation
Handle: RePEc:mnb:wpaper:2010/2