Dear Professor Jpfeifer,
I am working on a deterministic model with permanent shocks. I would like to estimate the parameters of adjustment costs. So far I found all estimation’s examples are for stochastic shocks. I would like to know if it would be possible to estimate the parameters in a deterministic model? and how? Is it in the same way of normal estimation?
Sincerely,
Leo
That is quite unusual. Adjustment costs are about dynamics, while you consider steady state transitions. That is almost impossible to do as almost all estimation techniques rely on some form of moment matching (GMM, SMM) or fully specified stochastic structure (ML). You could to some form of impulse response function matching if you have a data equivalent to the transition your are considering.