Investment Adjustment Costs: An Empirical Assessment
The authors 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. They 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.