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Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments

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  • Luigi Guiso
  • Chaoqun Lai
  • Makoto Nirei

Abstract

By 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 Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2011/25.

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Date of creation: 2011
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Handle: RePEc:eui:euiwps:eco2011/25

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Keywords: Interaction models; strategic complementarity; propagation effect; non-Gaussian uctuations; double-exponential distribution;

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References

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Cited by:
  1. D'Elia, Enrico & Nascia, Leopoldo & Zeli, Alessandro, 2011. "Analisi dei modelli d’impresa: discontinuità e sviluppo
    [Analysing firm's evolution: discontinuity and growth]
    ," MPRA Paper 35926, University Library of Munich, Germany.

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