A note on functional equivalence between intertemporal and multisectoral investment adjustment costs
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Date
2016
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Abstract
Kim (2003, JEDC) shows functional equivalence between intertemporal and multisectoral
investment adjustments costs in a linearized RBC model. From an identification point
of view, two parameters are not separately distinguishable, they enter as a sum into the
linearized solution. We demonstrate that estimating the quadratic approximation of the
model provides means to extract more information on the structural parameters from
data and thus estimate both parameters that are unidentiable under the log-linearized
model.
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Keywords
identification, investment adjustment costs, nonlinear DSGE, pruning, quadratic approximation