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Empirical Analysis of Optimal Firm Behaviour: Asymmetric Adjustment in Labour and Capital Demand in the Manufacturing Sector in the Netherlands and the U.K.

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Studies in Applied Econometrics

Part of the book series: Contributions to Economics ((CE))

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Abstract

This paper overcomes one of the shortcomings of the linear rational expectations model for labour and capital demand. Since the dynamics of these models are often the result of quadratic adjustment costs, one can question the appropriateness of that specification which has been introduced by Holt et al. (1960) and used since then in many studies. In order to model the adjustment costs of two types of labour and capital, we use the more general asymmetric functional form that was put forward and tested in Pfann and Verspagen (1989) and in Pfann and Palm (1992).

University of Limburg, P.O. Box 616, 6200 MD Maastricht, The Netherlands. Our thanks are due to Stephen Nickell, Gerd Hansen, Peter Kugler and Jürgen Wolters, and to the participants of the Econometric Seminar at CORE, Louvain and of the Workshop on Applied Econometrics, University of Munich for helpful comments and suggestions. We are grateful to Anthony Murphy for supplying the UK data. We would like to acknowledge the financial support of the Netherlands Organisation for the Advancement of Pure Research (N.W.O.) and the Royal Netherlands Academy of Arts and Sciences (K.N.A.W.).

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Authors and Affiliations

  1. University of Limburg, Maastricht, The Netherlands

    Franz G. Palm & Gerard A. Pfann

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  1. Franz G. Palm
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  2. Gerard A. Pfann
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Editors and Affiliations

  1. University of Munich, Akademiestraße 1/I, D-80799, München, Germany

    Hans Schneeweiß

  2. SELAPO, University of Munich, Ludwigstraße 28 RG, D-80539, München, Germany

    Klaus F. Zimmermann

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© 1993 Physica-Verlag Heidelberg

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Palm, F.G., Pfann, G.A. (1993). Empirical Analysis of Optimal Firm Behaviour: Asymmetric Adjustment in Labour and Capital Demand in the Manufacturing Sector in the Netherlands and the U.K.. In: Schneeweiß, H., Zimmermann, K.F. (eds) Studies in Applied Econometrics. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-642-51514-9_8

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  • DOI: https://doi.org/10.1007/978-3-642-51514-9_8

  • Publisher Name: Physica-Verlag HD

  • Print ISBN: 978-3-7908-0716-5

  • Online ISBN: 978-3-642-51514-9

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