TY  - JOUR
AU  - Cooper,Russell
AU  - Haltiwanger,John C.
AU  - Willis,Jonathan L.
TI  - Euler-Equation Estimation for Discrete Choice Models: A Capital Accumulation Application
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15675
PY  - 2010
Y2  - January 2010
UR  - http://www.nber.org/papers/w15675
L1  - http://www.nber.org/papers/w15675.pdf
N1  - Author contact info:
Russell Cooper
Department of Economics
European University Institute
via della Piazzola, 43
Firenze, 50133
ITALY
E-Mail: russellcoop@gmail.com

John C. Haltiwanger
Department of Economics
University of Maryland
College Park, MD 20742
Tel: 301/405-3504
Fax: 301/405-3542
E-Mail: haltiwan@econ.umd.edu

Jonathan Willis
Federal Reserve Bank of Kansas City
1 Memorial Drive
Kansas City, MO  64198
Tel: 8168812852
Fax: 8168812199
E-Mail: jonathan.willis@kc.frb.org
AB  - This paper studies capital adjustment at the establishment level. Our goal is to characterize capital adjustment costs, which are important for understanding both the dynamics of aggregate investment and the impact of various policies on capital accu- mulation. Our estimation strategy searches for parameters that minimize ex post errors in an Euler equation. This strategy is quite common in models for which adjustment occurs in each period. Here, we extend that logic to the estimation of parameters of dynamic optimization problems in which non-convexities lead to extended periods of investment inactivity. In doing so, we create a method to take into account censored observations stemming from intermittent investment. This methodology allows us to take the structural model directly to the data, avoiding time-consuming simulation- based methods. To study the effectiveness of this methodology, we first undertake several Monte Carlo exercises using data generated by the structural model. We then estimate capital adjustment costs for U.S. manufacturing establishments in two sectors.
ER  -