Barnett and Sakellaris (1999) show that the responsiveness of investment to Tobin’s Q is highly nonlinear, using a modified neoclassical investment model with linearly homogenous profit and capital adjustment cost functions, both of which are questioned by recent studies. In this paper, a dynamic investment model with convex and nonconvex adjustment costs as well as firm market power is simulat...

We study an optimization problem of an investor in which there is a better investment opportunity when he is rich than when he is poor. We model the betterment of the investment opportunity by considering an exogenously specified wealth threshold such that the investor’s investment opportunity is better when his wealth is above the threshold than when it is below the threshold. We derive a clos...

We survey recent microeconometric research on investment and employment that has used panel data on individual firms or plants. We focus on model specification and econometric estimation issues, but we also review some of the main empirical findings. We discuss advantages and limitations of microeconomic data in this context. We briefly review the neoclassical theory of the demand for capital a...

This paper provides new empirical insights into the source of investment adjustment costs. In contrast to prior models of investment that gave only ad hoc treatment to the concept of adjustment costs, my analysis pays serious micro-level attention to investment adjustment processes and their dynamics. I construct a structural dynamic model that predicts the lumpy and episodic patterns of mainfr...

This paper studies an asset and liability management problem with extended Cox-Ingersoll-Ross (CIR) interest rate, where the financial market is composed of one risk-free asset and multiple risky assets and one zero-coupon bond. We assume that risk-free interest rate is driven by extended CIR interest rate model, while liability is modeled by Brownian motion with drift and is generally correlat...

This paper proposes a model of endogenous fluctuations in investment. A monopolistic producer has an incentive to invest when the aggregate demand is high. This causes a propagation of investment across sectors. When the investment follows an (S,s) policy, the propagation size can exhibit a significant fluctuation. We characterize the probability distribution of the propagation size, and show t...

Natural resource revenues provide a valuable source to finance public investment in developing countries, which frequently face borrowing constraints and tax mobilization problems. This paper develops a dynamic stochastic model to analyze the macroeconomic effects of investing resource revenues, making explicit the role of public investment inefficiency, absorptive capacity constraints, Dutch d...