Adjustment Costs, Inventories and Output

Indeterminacy and Investment Adjustment Costs

It has been widely known that neoclassical growth models with su¢cient increasing returns in production may feature indeterminacy. This note shows that investment adjustment costs increase the required degree of increasing returns for indeterminacy to arise. Under empirically plausible levels of investment adjustment costs, we need implausibly large degree of increasing returns to generate inde...

Adjustment Costs from Environmental Change

The paper is concerned with the case whereby the distribution of a firm’s productivity shocks changes without the knowledge of the firm. Over time the firm learns about the nature and extent of the change in the distribution of the shock and adjusts, incurring adjustment costs in the process. The long run loss in profits (±) due to the shift in the distribution we term the equilibrium response....

Adjustment Costs and the Flexible Accelerator

Adjustment Costs and Long Run Spatial Agglomerations1

We introduce knowledge spillovers as an externality in the production function of competitive firms operating in a finite spatial domain under adjustment costs. Spillovers are spatial as productive knowledge flows more easily among firms located nearby. When knowledge spillovers are not internalized by firms spatial agglomerations may emerge endogenously in a competitive equilibrium, however, t...

Menu Costs and Asymmetric Price Adjustment

We study optimal price setting by a monopolist in an in…nite horizon model with stochastic costs, moderate in‡ation, and costly price adjustment. For realistic parameters, chosen to replicate observed frequencies of price changes, the model …ts numerically several empirical regularities. In particular, price reductions are larger but less frequent than price increases, and prices respond consid...