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Full-Text Articles in Social and Behavioral Sciences
Aggregate Implications Of Lumpy Investment: New Evidence And A Dsge Model, Ruediger Bachmann, Ricardo J. Caballero, Eduardo Engel
Aggregate Implications Of Lumpy Investment: New Evidence And A Dsge Model, Ruediger Bachmann, Ricardo J. Caballero, Eduardo Engel
Cowles Foundation Discussion Papers
The sensitivity of U.S. aggregate investment to shocks is procyclical: the response upon impact increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond explaining this specific time variation, our model and evidence provide a counterexample to the claim that microeconomic investment lumpiness is inconsequential for macroeconomic analysis.
Lumpy Investment In Dynamic General Equilibrium, Ruediger Bachmann, Ricardo J. Caballero, Eduardo Engel
Lumpy Investment In Dynamic General Equilibrium, Ruediger Bachmann, Ricardo J. Caballero, Eduardo Engel
Cowles Foundation Discussion Papers
Microeconomic lumpiness matters for macroeconomics. According to our DSGE model, it explains roughly 60% of the smoothing in the investment response to aggregate shocks. The remaining 40% is explained by general equilibrium forces. The central role played by micro frictions for aggregate dynamics results in important history dependence in business cycles. In particular, booms feed into themselves. The longer an expansion, the larger the response of investment to an additional positive shock. Conversely, a slowdown after a boom can lead to a long lasting investment slump, which is unresponsive to policy stimuli. Such dynamics are consistent with US investment patterns …