Title: Comparing Quadratic Costs of Capital Accumulation: An Empirical Assessment
Abstract:The incorporation of convex adjustment costs of capital accumulation into dynamic stochastic general equilibrium models has become standard practice in the literature, since these frictions improve th...The incorporation of convex adjustment costs of capital accumulation into dynamic stochastic general equilibrium models has become standard practice in the literature, since these frictions improve the ability of sticky-price models with endogenous investment to match the key features of the data considerably. In this paper, we use a Bayesian approach to investigate empirically how different ad-hoc specifications of adjustment costs affect the fit and the dynamics of a New Keynesian dynamic stochastic general equilibrium model with real and nominal frictions featuring several exogenous stochastic disturbances. We consider two different forms of quadratic adjustment costs: investment adjustment costs and capital adjustment costs. Using both euro area and US data, we detect significant differences between certain estimated structural parameters across these model specifications. Further, the implementation of either investment or capital adjustment costs affects the empirical fit and the dynamics of the respective model specifications substantially.Read More
Publication Year: 2013
Publication Date: 2013-07-02
Language: en
Type: article
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