1994 | OriginalPaper | Buchkapitel
Adjustment Costs and Time-To-Build in Factor Demand in the U.S. Manufacturing Industry
verfasst von : Franz C. Palm, H. M. M. Peeters, G. A. Pfann
Erschienen in: New Developments in Time Series Econometrics
Verlag: Physica-Verlag HD
Enthalten in: Professional Book Archive
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In order to explain cyclical behavior of factor demand, the static neoclassical model of the firm has been extended to include either adjustment costs (e.g. Lucas (1967)) or time-to-build considerations as in Kydland and Prescott (1982). This paper presents an intertemporal factor demand model which accounts for adjustment costs and gestation lags. The closed form solution of the model is a highly restricted vector ARMA-process that is estimated using quarterly data for the manufacturing industry in the U.S., 1960–1988.The main conclusion is that both sources of dynamics of factor demand are identifiable and found to be empirically of importance.