FIGURE 3. Search frictions: Permanent increase in public investment with planning delays

Horizontal axes: quarters; vertical axes: percent deviations from the steady state, except inflation, which is in annualised p.p. deviations from the steady state, and public debt to GDP, which is in p.p. deviations. All variables are in real terms.

The mechanism is somewhat, but not completely, similar when the delays are due to construction (time to build), shown in Figure 4. In particular, inflation increases markedly already on impact, and it does so regardless of the length of the delay. This