Time-to-Build and Investment

Abstract

The paper investigates the effect of the time-to-build technology on investment dynamics. It explains the positive autocorrelation of investment by showing that investment is serially correlated once the time-to-build technology is taken into account. The paper also shows that the time-to-build technology can explain a substantial portion of the variation in aggregate investment data. Using estimated marginal Q, the paper illustrates that investment responds asymmetrically to different levels of Q (a fact in favor of the irreversibility argument).

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