scholarly journals A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence

2008 ◽  
Vol 98 (1) ◽  
pp. 474-495 ◽  
Author(s):  
Marjorie Flavin ◽  
Shinobu Nakagawa
Keyword(s):  
Asset Pricing ◽  
Housing Price ◽  
Adjustment Costs ◽  
Portfolio Allocation ◽  
Relative Price ◽  
Adjustment Cost ◽  
Price Risk ◽  
Financial Assets ◽  
Habit Persistence ◽  
Over Time

The paper provides a model of household consumption and portfolio allocation which incorporates housing as both a consumption good and a component of wealth. Household utility depends, possibly nonseparably, on two goods: nondurable consumption, which is costlessly adjustable, and housing, which is subject to a nonconvex adjustment cost. Households face housing price risk in the sense that the relative price of housing varies over time, and can invest in a wide variety of financial assets in addition to housing. This single, reasonably tractable, model generates testable implications for portfolio allocation, risk aversion, asset pricing, and the dynamics of nondurable consumption. (JEL D14, G11, R21)

CONSUMER DEMAND, CONSUMPTION, AND ASSET PRICING: AN INTEGRATED ANALYSIS WITH INTERTEMPORAL TWO-STAGE BUDGETING

2019 ◽  
pp. 1-47
Author(s):  
H. Youn Kim ◽  
Keith R. Mclaren ◽  
K. K. Gary Wong
Keyword(s):  
Asset Pricing ◽  
Durable Goods ◽  
Liquidity Constraints ◽  
Relative Price ◽  
Adjustment Cost ◽  
Integrated Analysis ◽  
Two Stage ◽  
Consumption Growth ◽  
Nondurable Goods ◽  
Demand Functions

This paper integrates seemingly disjoint studies on consumer behavior in micro and macroanalyses via an intertemporal two-stage budgeting procedure with durable goods and liquidity constraints. The model specifies an indirect utility function as a function of nondurable consumption, commodity (nondurables) prices, and durables stock, and derives the demand functions for nondurable goods. A demand function for durable goods is derived in an adjustment cost framework. The consumption growth equation accounts for relative price effects with precautionary saving, durables stock, and liquidity constraints. The stochastic discount factor is approximated by a time-varying linear function of nondurable consumption growth, commodity price growth, durables stock growth, and disposable income growth. The demand functions for six nondurable goods and services are jointly estimated with the Euler equations for bonds, stocks, and durable goods with allowance for liquidity constraints, using US data. Estimation provides new findings for intertemporal consumption and a multifactor consumption-based capital asset pricing model.

scholarly journals Dynamic factor demand in the Japanese manufacturing industry

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sangho Kim
Keyword(s):  
Manufacturing Industry ◽  
Adjustment Costs ◽  
Dynamic Structure ◽  
Adjustment Cost ◽  
Dynamic Factor ◽  
Dynamic Learning ◽  
Content Type ◽  
Long Run ◽  
Factor Demand ◽  
Dynamic Factor Demand

PurposeThis study investigates the dynamic production structure of the Japanese manufacturing industry by using the adjustment cost approach. The study is to shed some light on the unique dynamic structure of the Japanese manufacturing industry. The study attempts to help design and predict industrial policies that are implemented to enhance domestic investments by the Japanese government.Design/methodology/approachThis study obtains a system of dynamic factor demand and output supply equations by applying the dual approach to the intertemporal value function as represented by the Hamilton–Jacobi equation. By using industrial panel data for 1973–2012 of the Japanese manufacturing industry, the study estimates the system of the behavioral equations and corresponding elasticities. The study uses hypothesis tests and dynamic elasticities to investigate the dynamic structure of the Japanese manufacturing industry.FindingsEstimation results show that labor and capital are quasi-fixed variables that adjust about 0.2 percent annually to the long-run optimum levels. Estimated adjustment rates are very slow as often presumed about the Japanese manufacturing industry, which uses lifetime employment practice and slow decision-making process in investment decisions. The results also show that output supply and factor demand elasticities vary greatly depending on time horizon. Factor demand increases when its own price increases in the short run, suggesting that factor adjustment is mostly determined factor prices in the past due to sluggish factor adjustment. However, factor demand becomes a normal downward-sloping curve in the long run as factor adjustment gets completed.Originality/valueJapanese manufacturing firms hire employees through lifetime contract to exploit the benefits of dynamic learning-by-doing and execute investments carefully considering all the possible impacts. Under the strategy, adjustment costs for changing workers and capital stock are minimized. Dynamic adjustment model is expected to shed some light on the unique dynamic structure of the Japanese manufacturing industry. However, researches regarding the dynamic factor adjustment of the Japanese manufacturing industry are hard to find. This study is expected to fill the research vacuum.

A Comment on the Economics of Labor Adjustment: Mind the Gap: Evidence from a Monte Carlo Experiment

2009 ◽  
Vol 99 (5) ◽  
pp. 2258-2266 ◽  
Author(s):  
Christian Bayer
Keyword(s):  
Cost Model ◽  
Simulated Data ◽  
Adjustment Costs ◽  
Adjustment Cost ◽  
Monte Carlo Experiment ◽  
Dynamic Adjustment ◽  
Employment Decisions ◽  
Firm Level ◽  
Labor Adjustment ◽  
Productivity Process

This comment addresses a point raised in Russell Cooper and Jonathan Willis (2003, 2004), which discusses whether the “gap approach” is appropriate to describe the adjustment of production factors. They show that this approach to labor adjustment as applied in Ricardo J. Caballero, Eduardo Engel, and John C. Haltiwanger (1997) and Caballero and Engel (1993) can falsely generate evidence in favor of nonconvex adjustment costs, even if costs are quadratic. Simulating a dynamic model of firm-level employment decisions with quadratic adjustment costs and estimating a gap model from the simulated data, they identify two factors producing this spurious evidence: approximating dynamic adjustment targets by static ones, and estimating the static targets themselves. This comment reassesses whether the first factor indeed leads to spurious evidence in favor of fixed adjustment costs. We show that the numerical approximation of the productivity process is pivotal for Cooper and Willis's finding. With more precise approximations of the productivity process, it becomes rare to falsely reject the quadratic adjustment cost model due to the approximation of dynamic targets by static ones. (JEL E24, J3)

NOMINAL RIGIDITIES, RESIDENTIAL INVESTMENT, AND ADJUSTMENT COSTS

2009 ◽  
Vol 14 (1) ◽  
pp. 136-148 ◽  
Author(s):  
Charles T. Carlstrom ◽  
Timothy S. Fuerst
Keyword(s):  
General Equilibrium ◽  
Empirical Evidence ◽  
Equilibrium Model ◽  
Durable Goods ◽  
Adjustment Costs ◽  
American Economic Review ◽  
Housing Construction ◽  
Residential Housing ◽  
Habit Persistence ◽  
Residential Investment

Evidence suggests that durable goods and residential housing are more flexibly priced than nondurables and services. Using a standard sticky price general equilibrium model, Barsky, House, and Kimball [American Economic Review 97(3) (2007), 984–998] demonstrate that if durable goods are flexibly priced and nondurables are sticky, then a monetary contraction leads to an expansion in production in the durable sector. This is wildly at odds with the empirical evidence. This paper demonstrates that if three features are added to the model (sticky nominal wages, housing construction adjustment costs, and habit persistence in consumption), it delivers sectoral implications that are broadly consistent with the data.

scholarly journals A NOTE ON THE EXACT SOLUTION OF ASSET PRICING MODELS WITH HABIT PERSISTENCE

2006 ◽  
Vol 10 (2) ◽  
pp. 273-283 ◽  
Author(s):  
FABRICE COLLARD ◽  
PATRICK FÈVE ◽  
IMEN GHATTASSI
Keyword(s):  
Asset Pricing ◽  
Rational Expectation ◽  
Closed Form Solution ◽  
Autoregressive Process ◽  
Form Solution ◽  
Estimation Methods ◽  
Finite Sample ◽  
Habit Persistence ◽  
Asset Pricing Models ◽  
Finite Sample Properties

This paper provides a closed-form solution to a standard asset pricing model with habit formation when the growth rate of endowment follows a first-order Gaussian autoregressive process. We determine conditions that guarantee the existence of a stationary bounded equilibrium. The findings are useful because they allow to evaluate the accuracy of various approximation methods to nonlinear rational expectation models. Furthermore, they can be used to perform simulation experiments to study the finite sample properties of various estimation methods.

scholarly journals A Comparison of Linear and Nonlinear Models in Forecasting Market Risk: The Evidence from Turkish Derivative Exchange

2013 ◽  
Vol 5 (3) ◽  
pp. 164-172
Author(s):  
Yasemin Deniz Akarım
Keyword(s):  
Risk Management ◽  
Asset Pricing ◽  
Nonlinear Models ◽  
Investment Decisions ◽  
Portfolio Allocation ◽  
Garch Models ◽  
Ann Model ◽  
Volatility Forecasting ◽  
Forecasting Performance ◽  
Linear And Nonlinear

This paper aims to compare the volatility forecasting performance of linear and nonlinear models for ISE-30 future index which is traded in Turkish Derivatives Exchangefor the period between 04.02.2005-17.06.2011. As a result of analyses, we conclude that ANN model has better forecasting performance than traditional ARCH-GARCH models. This result is important in many fields of finance such as investment decisions, asset pricing, portfolio allocation and risk management

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