Lumpy investment in dynamic general equilibrium
By: Ruediger Bachmann, Ricardo J. Caballero, Eduardo M.R.A. Engel
Contributors: Caballero, Ricardo J.; Engel, Eduardo M.R.A.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12336; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12336.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "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 over the last decade.  More broadly, over the 1960-2000 sample, the initial response of investment to a productivity shock with responses in the top quartile is 60% higher than the average response in the bottom quartile.  Furthermore, the reduction in the relative importance of general equilibrium forces for aggregate investment dynamics also facilitates matching conventional RBC moments for consumption and employment"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/28/2006.

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