Adjustment Cost

The present paper develops a three-sector general equilibrium model for examining the outcomes of an infrastructure development scheme of the government to the education sector and inflows of foreign capital on the skilled-unskilled wage inequality in a developing economy in the presence of endogenous skill formation. There is a low-skill sector that produces an export commodity using unskilled labour and capital. In another sector of the economy a high-skill commodity is produced with the help of skilled labour and capital. There is a skill formation sector (universities) as well where one unit of unskilled labour and some amount of capital are required to produce one unit of skilled labour. The education sector faces a capital adjustment cost due to which the price of capital depends positively on the amount of capital employed. There is a provision for government financial assistance to this sector that lowers the unit capital cost. The economy starts with given endowments of both types of labour. The endowment of skilled labour increases and that of unskilled labour goes down due to skill formation. This theoretical analysis leads to some interesting results. While both the financial assistance policy and the inflows of foreign capital lead to higher skill formation, the policies produce dissimilar effects on the wages of skilled and unskilled labour. An infrastructure development scheme lowers both the wages while the entry of foreign capital produces just the opposite effects on the wages. Furthermore, the effects of the policies on the skilled-unskilled wage inequality depend crucially on the relative factor intensities of the low-skill and high-skill sectors. The financial assistance scheme improves the relative wage inequality when the high-skill sector is capital-intensive while an inflow of foreign capital lowers the wage inequality only when the low-skill sector is capital-intensive. Which of the two policies the country should implement, therefore, depends on the technological, institutional and trade related factors.

The bottom panel in Figure 5 show how the overpredicted correlation can be reduced with the quadratic price adjustment cost. We simulate the DSGE model with the parameter c varying from zero as in the standard NKPC model to its estimated value (c = 83.3) in our proposed model, in order to generate the correlation between output gap and inflation. As can be seen, a rise in the price adjustment cost reduces the contemporaneous correlation, leading to a better fit of the data by the model. The intuition behind this result is that the increased cost of price adjustment causes a slower and more gradual response of inflation to demand and monetary shocks, even though the innovations lead to substantial movements in output gap, as shown in Figure 2. Once the three shocks are taken into account simultaneously, the estimated DSGE model predicts the weak, but still positive, contemporaneous correlation between output gap and inflation, due to the reduced response of inflation to the demand-side shocks. When a positive demand shock (or an expansionary monetary shock) hits the economy, forward-looking firms expect that future values of output gap will be positive for a considerable time. Therefore, firms that receive a random signal of price adjustment raise their prices. The impact of this expectation channel on prices is substantial in the standard NKPC with Calvo pricing in which prices are fully adjusted. By contrast, the demand (or monetary) shock has a limited impact on

The rest of the paper is organized as follows. Section 2 examines the steady-state equilibrium of a neoclassical growth model with adjustment costs; Section 3 presents several examples of adjustment cost functions and analyzes their specific requirements; Section 4 specifies the prerequisite of the Uzawa theorem and its economic implications, and Section 5 concludes.

of borrowing constraints, investment shocks become more volatile but less persistent. Risk premium shocks, however, are estimated to be less volatile but more persistent. Introducing borrowing constraints also lowers the mean of the posterior estimates of the capital utilization and investment adjustment cost parameters, relative to the model without borrowing constraints. The additional structure that we have introduced with the two agent types and the borrowing constraint has come at a cost. Like Brzoza-Brzezina and Kolasa (2013), we find that empirical fit is adversely affected by the introduction of the borrowing constraint. Estimates of the (log) marginal data densities of the models with and without the borrowing constraint are reported in Table 3. 7 The modified harmonic mean estimate is based on an average of the draws from

The historical decomposition of the investment growth rate is shown in Figure 3. This …gure illustrates that investment ‡uctuations are mainly driven by investment adjustment cost shocks rather than IST changes. Particularly, the boom-bust cycle of investment from the late 1980s to the early 1990s is for the most part explained by the adjustment cost shocks. This result is similar to that of Justiniano et al. (2011), who estimate a similar model for the U.S. economy. Justiniano et al. show that the investment e¢ciency shock proposed by Greenwood et al. (1988), which captures almost the same wedge in an investment equilibrium condition as the investment adjustment cost shocks in our model, is the main driving force of aggregate ‡uctuations rather than IST shocks.

In the mechanism design theory, a designer would like to implement a desired social choice function which specifies her favorite outcome for each possible profile of all agents’ types. Traditionally, the designer may be in a dilemma in the sense that even if she is not satisfied with some outcome with low profit, she has to announce it because she must obey the mechanism designed by herself. In this paper, we investi- gate a case where the designer can induce each agent to adjust his type in a one-shot mechanism. We propose that for a profitable Bayesian implementable social choice function, the designer may escape from the above-mentioned dilemma by spending the optimal adjustment cost and obtain a higher profit. Finally, we construct an example to show that the designer can breakthrough the limit of expected profit which she can obtain at most in the traditional optimal auction model.

Firms in the second model also pay a quadratic adjustment cost if they change their vol- ume of trade from one period to the next. Adjustment costs arise from additional legal and infrastructure expenses or search costs, and are aimed to capture the time dimension of ship- ping to eliminate the unrealistic assumption of instantaneous adjustment. In the dynamic non-linear environment, firms’ aversion to react to endowment shocks by large adjustments in trade volume creates larger and longer-lasting real exchange rate deviations. Adjustment costs limit trade between countries and the co-movement of their consumption levels. Sim- ulation results of the second model generates great RER volatility, nearly matches the RER persistence, and performs very well in bringing comovements of other relevant variables close to the data. In this sense, heterogeneity in shipping costs is a plausible and an empirically relevant candidate explanation for the observed persistence and volatility in real exchange rates.

A new approach for estimating and testing the linear quadratic adjustment cost model under rational expectations and I1 variables, Journal of Economic Dynamics and Control 26, 117-139.. [r]

Many activities in the broad area of corporate finance are associated with some kinds of adjustment costs. Specific assumptions regarding the nature of adjustment costs lead to particular predictions about corporate behavior and the way it can be mod- eled. A double-barrier model typically arises in the presence of lumpy (non-convex) adjustment costs and exploits the upper and lower thresholds to quantify dynamic de- cision making. The model predicts that a variable freely floats within range bounded by the two thresholds, and is adjusted back to target level once the variable hits either threshold. This infrequent adjustment pattern is therefore optimal as a result of lumpy adjustment costs. Applications of the double-barrier model allows to study several interesting phenomena such as the trigger of adjustment. Each of the two following chapters of this thesis investigates a separate area of corporate finance with a focus on adjustment dynamics. Chapter 2 is an empirical application of the double- barrier model to the optimal cash holding management. Chapter 3 investigates the existence and effects of stickiness in credit ratings. The dynamic adjustment cost

Thailand’s international trade, exports in particular, expanded considerably after the major policy changes in 1990. According to this expansion, there was also a significant increase in intra-industry trade even though the major characteristic of Thailand trade is still inter-industry. However, intra-industry trade is hypothesized to reduce adjustment costs due to trade expansion and changes in trade compared to inter-industry trade. The main purpose of this paper is to examine the effects of increased Intra-Industry Trade (IIT) on the labor market adjustment cost, in view of the changes in Thailand’s pattern of trade over the post-1990 period. The study is focused on the hypothesis that Intra-Industry Trade (IIT) expansion entails lower factor adjustment costs (Smooth Adjustment Hypothesis-SAH). A dynamic panel data approach is employed. The results suggest a nega- tive correlation between changes in employment and Marginal Intra-Industry Trade (MIIT) and confirmation of the SAH. Given the increase in IIT as a proportion of Thailand’s overall trade during the period under review, the adjustment in labor markets in the form of reduced employment from trade liberalization at that time is likely to have been less than that would have otherwise been expected.

approach, dynamic network topology is used because the mobile sink keep on changing its position thus for efficient data delivery, nodes should keep the track of latest position of mobile sink. In virtual structure, just a set of nodes covered in the sensor field participate in creating a track of mobile sink’s location. Collisions are reduced by this method and retransmissions like in other data dissemination protocols e.g. Directed Diffusion are also reduced [4]. The sensor field is divided into k equal sized cells. Nodes that are close to centers of the cells are selected as cell headers. These cell headers comprise a virtual backbone network. The objective of this virtual structure is to lessen energy consumption by minimizing the routes re-adjustment cost. With virtual grid routing scheme, just a small group of cell headers participates in routes readjustment according to the latest location of mobile sink, which reduces the communication cost [3].

The first two blocks of the table show how the moments respond to changes in mean income level, using the baseline estimates and the ‘‘Fixed AC’’ cases. 19 The ‘‘High Mean Income’’ treatment increases average income by 20% and the ‘‘Low Mean Income’’ treatment reduces it by 20%. Else, the same stochastic progress for income, explained in Appendix, is used. Given that the adjustment cost is proportional to income, adjustment is more costly for the high income group than for the low income group. But, the gains to adjustment will also depend on mean income through the size of the portfolio. As seen in the top block of Table 7, the first effect dominates—the adjustment rate is a bit lower for the high mean income treatment and a bit higher for the low mean income treatment relative to the baseline. There is some response in other moments as well. None of these effects is large.

This paper presents a mechanism through which a depreciated real exchange rate can lead to a higher investment rate. In an intertemporal framework, it shows that a depreciated real exchange rate can make the tradable sector more profitable and thus a greater requirement for capital. Moreover, the investment-enhancing effect of a depreciated real exchange rate decreases in mag- nitude when there is higher adjustment cost of investment.

holiday periods and find what they term “asymmetric price adjustment in the small.” Specifically, Levy, et al. find that in these data, there are more retail price increases than decreases for price changes of up to about 10 cents. The asymmetry disappears beyond that. They argue that the finding is consistent with a model in which shoppers are “rationally inattentive” to small price changes. Price setters take advantage of this inattention, making more frequent small price increases and decreases. Ray, et al. (2006) conduct a similar analysis of the wholesale price data in Dominick’s dataset and report a similar finding. To explain the finding, Ray, et al. construct a model of channel of production with cost of price adjustment, and demonstrate that if the downstream price adjustment cost (i.e., the menu cost) is higher than the upstream price adjustment cost, then the wholesaler will have incentive to make more frequent small wholesale price increases than decreases, knowing that the small wholesale price increases will not be passed through on the final consumers because of the menu cost.

The second step is to combine the immobile asset with a continuously variable, internationally mobile, factor of production, and can be understood as choosing the scale of production. The recent literature on the taxation of foreign pro…ts has shown that it is of central importance whether foreign investment a¤ects domestic economic activity, and we allow for this in a simple and empirically relevant way, by means of introducing a cost of adjustment for the mobile factor. Speci…cally, the multinational has an initial stock of the mobile factor, which it can allocate to assets at home or abroad. But, in addition, it can hire additional amounts of the mobile factor, at the cost of incurring a convex cost of adjustment in addition to the market price of the factor. In the limiting case where this cost of adjustment is zero, there is no link between domestic and foreign production (Becker and Fuest’s "variable management capacity"). In the other limiting case where the adjustment cost becomes very large, there is a one-to-one trade-o¤ between domestic and foreign projects (Becker and Fuest’s "…xed management capacity").

This paper investigates the cost control problem of congestion management model in the real-time power systems. An improved optimal congestion cost model is built by introducing the congestion factor in dealing with the cases: opening the generator side and load side simultaneously. The problem of real-time congestion management is transformed to a nonlinear programming problem. While the transmission congestion is maximum, the adjustment cost is minimum based on the ant colony algorithm, and the global optimal solu- tion is obtained. Simulation results show that the improved optimal model can obviously reduce the adjust- ment cost and the designed algorithm is safe and easy to implement.

The simulation results are represented in Figure 3, which shows the deviation of long-term new hiring, long-term employment, short-term employment, and total employment when the positive shock takes place from their steady state values. It shows that all variables fluctuate in the planning periods. The employment fluctuations and steady state values with no adjustment cost case are shown in Table 9. The steady state short-term employment ratio ( 𝐿 % ⁄ (𝐿 $ + 𝐿 % ) ) is 0.0301 ( 3.01 %), which is lower than the baseline case. The fluctuations in long-term and short-term employment are comparable to the level in the no adjustment cost case. Both the fluctuations in long-term and short-term employment with no adjustment cost case are more volatile than that of the baseline simulations. The adjustment cost plays a role in smoothing the employment fluctuations, which is the same result found in the literature on dynamic labor demand (e.g., Nickell 1986). Moreover, the simulation results could be supported by Faccini and Bondibene (2012), who indicate that the EPL for permanent workers reduces the volatility of unemployment rates.

On the reference ring (Fig. 2) the Cartesian (X,Y,Z) coordinates of the control points and check points have been measured by using a digital gauge at approximately 10 micron accuracy. The accuracy of the calculated values for the check points yielded by bundle adjustment results corresponds to the accuracy of a reconstructed surface model of a skin lesion. In further stages of progressive 3D analysis of a lesion in a specific time period (e.g., to observe lesion growth, displacement, etc.), each set of model coor- dinates may compared to previous ones to identify the differences. It would be easier to compare model features (e.g., distances, volumes) rather than the coordinates because it will be difficult to position the reference ring in each time of measurement on its exact original location. The other issue is pin-point identi- fication of control points’ or test points’ centroids to sub-pixel accuracy due to insufficient camera resolu- tion (Fig. 6) and fixed focal length (non-auto focus) characteristic of the camera.

Next, we explore the effect of various types of negative shocks on wage adjustment. We include the strength and persistency of the demand shock, which gives us four different categories of negative demand changes.The results in Table 8 show that all categories of the fall in demand exhibit consistent effects. Firms which are hit by a negative demand shock are more likely to reduce both base wages and non-base wage components. A strong fall in demand induces a stronger marginal effect than a moderate fall in demand. The largest marginal effect is in response to a strong, long-lasting negative demand shock. The strength and persistence of a fall in demand does not affect the marginal effect of a fall in demand on the probability of unchanged non-base wages. However, the marginal effect of a fall in demand on the probability of base wages remaining unchanged is higher when the shock is strong, which might reflect stronger downward rigidity of base wages. We find that the marginal effect on the probability of reducing non-base wages is stronger than in the case of base wages (see the first column in Table 8).

Right from birth of a child every parent tries to teach self-control to their baby. The reason behind it might be, they think that this self-control will help their child in many areas of life. The most important thing is, they will not get embarrassed in front of other society members due to their child’s behavior. When the child obeys his/her parents order or behave as they teach, the child is adjusting with his/her surroundings. To get adjusted with our surroundings we have to control ourselves to somewhat extent. It is generally seen that when there is adjustment, things go smoothly. When a person unable to adjust loses control or when he loses self-control faces difficulty in adjustment. It is general observation but as a researcher, the researcher wanted to study if there is any significant co-relation between self-control and different types of adjustment