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Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model

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Abstract

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.

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File URL: http://cowles.econ.yale.edu/P/cd/d15b/d1566-r.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1566R.

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Length: 48 pages
Date of creation: Jun 2008
Date of revision: Apr 2010
Handle: RePEc:cwl:cwldpp:1566-r

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Ss model; RBC model; Time-varying impulse response function; History dependence; Conditional heteroscedasticity; Aggregate shocks; Sectoral shocks; Idiosyncratic shocks; Adjustment costs;

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References

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  1. Francois Gourio & Anil K Kashyap, 2007. "Investment Spikes: New Facts and a General Equilibrium Exploration," NBER Working Papers 13157, National Bureau of Economic Research, Inc.
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  20. Julia K. Thomas, 2002. "Is Lumpy Investment Relevant for the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 508-534, June.
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