Time to Plan and Aggregate Fluctuations

Christiano, Lawrence J.; Todd, Richard M.

doi:10.21034/qr.2012

Cited by 45 publications

(26 citation statements)

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“…Basu and Kimball (2005) present a model with “investment planning costs” in which the effects of monetary and fiscal shocks on output and investment resemble those in models with investment adjustment costs. Their findings suggest that investment adjustment costs may proxy delays in investment planning or inflexibility in changing the planned pattern of investment, as considered in Christiano and Todd (1996) and Edge (2000) and explicitly modeled by Gertler and Gilchrist (2000) and Casares (2006), by considering time‐to‐plan and time‐to‐build constraints. More recently, Lucca (2007) also considers a variant of the time‐to‐build model that generates dynamics similar to investment adjustment costs models.…”

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Investment Adjustment Costs: An Empirical Assessment

Groth¹,

Khan²

2010

J of Money Credit Banking

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We evaluate the empirical evidence for costs that penalize changes in investment using U.S. industry data. In aggregate models, such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena. So far no attempt has been made to estimate these costs directly at a disaggregated level. We consider an industry model with investment adjustment costs and estimate its parameters using generalized methods of moments. The findings indicate small costs associated with changing the flow of investment at the industry level. The weighted average of the industry elasticities with respect to the shadow price of capital, which depends inversely on the adjustment cost parameter, is eight times larger than the largest estimate reported in Levin et al. (2006). We examine a variety of factors that may account for this discrepancy, but a substantial part of it remains unexplained. Our results therefore suggest that more caution is needed when giving policy advice that hinges on a structural interpretation of large investment adjustment costs.JEL codes: E2, E3 Keyword: investment adjustment costs.FOLLOWING CHRISTIANO , costs to changing the level of investment-investment adjustment costs-have featured prominently in the recent literature on aggregate dynamic general equilibrium models to help account for a variety of macroeconomic phenomenon. In this paper, we attempt to estimate these We thank an anonymous referee,

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Investment Adjustment Costs: An Empirical Assessment

Groth¹,

Khan²

2010

J of Money Credit Banking

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“…19 Kydland and Prescott (1982) is, of course, the seminal work on time-to-build models. For further discussion on the business cycle ramifications of capital complementarity see, for example, Christiano and Todd (1995), Montgomery (1995), and Casares (2006).…”

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The efficiency of internal capital markets: Evidence from the Annual Capital Expenditure Survey

Agarwal

Chiu

Souphom

et al. 2011

The Quarterly Review of Economics and Finance

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We empirically examine whether greater firm diversity results in the inefficient allocation of capital. Using both COMPUSTAT and the Annual Capital Expenditure Survey (ACES) we find firm diversity to be negatively related to the efficiency of investment. However once we distinguish between capital expenditure for structures and equipment, we find that while firms do inefficiently allocate capital for equipment, they efficiently allocate capital for structures. These results suggest that when the decision will have long-lasting repercussions, headquarters will, more often than not, make the correct choice.JEL Classification: D2, G3, L2

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“…Her estimates are drawn from the 1975-1996 time period and include both time-to-plan and time-to-build. Christiano and Todd (1996) specify a model that incorporates time-to-plan in a business cycle context. They find that the inclusion of time-to-plan improves their model's ability to account for the persistence of output growth, the fact that productivity leads hours worked over the business cycle and that business investment lags output.…”

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confidence: 99%

Connecting Optimal Capital Investment and Equity Returns

Porter

2005

Financial Management

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Economic theory predicts a contemporaneous correlation between equity returns and investment growth that is only weakly present in the data. By modifying the firm's production function to include a lag between investment decisions and expenditures, and after correcting for the temporal aggregation of investment, I find the predicted correlation to be present in the data. I estimate the model for 31 industries and find that investment returns are highly correlated with the industry portfolio equity returns. Further, the portion of investment returns orthogonal to equity returns is associated positively with changes in profitability and negatively with lagged differences between equity and investment returns. I thank Lemma Senbet (the Editor) and the anonymous referee for their comments and suggestions. I also thank

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Time to Plan and Aggregate Fluctuations

Abstract: This publication primarily presents economic research aimed at improving policymaking by the Federal Reserve System and other governmental authorities.

Cited by 45 publications

References 23 publications

Investment Adjustment Costs: An Empirical Assessment

Investment Adjustment Costs: An Empirical Assessment

The efficiency of internal capital markets: Evidence from the Annual Capital Expenditure Survey

Connecting Optimal Capital Investment and Equity Returns

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