This paper develops a model for optimal capital investment in continuous time when both existing and new capital stocks are subject to uncertainty. The model is generalized to allow for large and infrequent changes in the dynamics of the capital stock, which may arise as a result of natural and...

We show that the two-variable VAR model of Blanchard and Quah (1989) produces results identical to those based on the Sims (1980) orthogonalization if the first-ordered variable is not caused in the long run by the second-ordered variable. Some illustrative examples are provided to demonstrate...