Investment behaviour in transition countries and computable general equilibrium models

When applying Computable General Equilibrium (CGE) models to transition eco nomies, it is not plausible to use the standard assumption that the base ye ar data represent stable structural characteristics or even the steady stat e of the economy. The suggestions forwarded until now to overcome this prob lem are discussed in this article. An amendment is proposed by modifying th e investment modelling within the dynamic CGE setting. The standard formula tion of installation costs for capital is extended through the inclusion of adjustment costs that depend on the change of the investment level. Such f ormulation of the adjustment costs within the dynamic CGE model leads to an investment behaviour that mirrors the empirical data of the first years of the transition.