Michael Reiter (Institute for Advanced Studies, Vienna) Tommy Sveen () (Norges Bank (Central Bank of Norway)) Lutz Weinke (Duke University and Institute for Advanced Studies, Vienna)
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The lumpy nature of plant-level investment is generally not taken into account in the context of monetary theory (see, e.g., Christiano et al. 2005 and Woodford 2005). We formulate a generalized (S,s) pricing and investment model which is empirically more plausible along that dimension. Surprisingly, our main result shows that the presence of lumpy investment casts doubt on the ability of sticky prices to imply a quantitatively relevant monetary transmission mechanism.
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Paper provided by Norges Bank in its series Working Paper with number
2009/05.