Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments
AbstractBy using an extensive panel data set of Italian firms, we show empirically that the fraction of firms that engage in a lumpy investment follows a non-normal, double-exponential distribution across region-year. We propose a simple sectoral model that generates the double-exponential distribution that arises from the complementarity of the firms' lumpy investments within a region. We calibrate the degree of complementarity by estimating an individual firm's behavior with the firm-level data. Simulations show that the degree of complementarity estimated at the firm level is consistent with the double-exponential fluctuations observed at the aggregate level.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2011/25.
Date of creation: 2011
Date of revision:
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Interaction models; strategic complementarity; propagation effect; non-Gaussian uctuations; double-exponential distribution;
Other versions of this item:
- Luigi Guiso & Chaoqun Lai & Makoto Mirei, 2011. "Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments," EIEF Working Papers Series 1112, Einaudi Institute for Economics and Finance (EIEF), revised Jun 2011.
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
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