How non-traded goods may generate quasi-quadratic costs for capital adjustment

This paper shows that a two-tiered production structure with both traded and non-traded intermediate goods and non-traded final goods can generate a cost of capital adjustment that is very similar to the quadratic adjustment cost often assumed in single good macroeconomic models. This implies that while a quadratic loss function may seem like an ad hoc adjustment, it can be rationalized by sound theory from a more detailed model.

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Year of publication:	2015
Authors:	Phillips, Kerk L.
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 127.2015, C, p. 24-26
Publisher:	Elsevier
Subject:	Nontraded goods \| Adjustment costs \| Quadratic \| Capital accumulation

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Type of publication:	Article
Classification:	E22 - Capital; Investment (including Inventories); Capacity ; F10 - Trade. General ; F47 - Forecasting and Simulation
Source:	RePEc - Research Papers in Economics

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