Capital Adjustment Patterns In Swedish Manufacturing Firms: What Model Do They Suggest?

We study the capital adjustment process in Swedish manufacturing Firms and relate the findings to standard models of capital adjustment. We have three findings. ("i") The capital accumulation process is highly volatile and non-persistent. ("ii") An "S", "s" model fits the data well in some, but not all, dimensions. Also, a model with irreversible capital goes a long way in matching the data. In fact, we argue that it is much more likely that the data reflect irreversibility than fix adjustment costs. ("iii") The estimated adjustment function implies that aggregate investment is relatively unresponsive in deep recessions as compared to normal times. Copyright 2005 Royal Economic Society.