Aggregate Fluctuations of Discrete Investments
AbstractThis paper demonstrates endogenous fluctuations of aggregate investments when firm-level investments follow an (S,s) policy and exhibit strategic complementarity. We present a method to characterize the aggregate fluctuations that arise from the interaction of the (S,s) policies. A closed-form distribution function of the output growth rate is derived in general environments. We show that the growth rate has a strictly positive variance even when the number of firms tends to infinity if the production exhibits constant returns to scale and the real wage and interest rate are fixed.
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Bibliographic InfoPaper provided by Institute of Innovation Research, Hitotsubashi University in its series IIR Working Paper with number 08-08.
Length: 52 p.
Date of creation: Dec 2008
Date of revision:
Lumpy investment; (S; s) economy; strategic complementarity; self-organized criticality; fat-tailed distribution;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-18 (All new papers)
- NEP-BEC-2009-04-18 (Business Economics)
- NEP-MAC-2009-04-18 (Macroeconomics)
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- 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.
- Luigi Guiso & Chaoqun Lai & Makoto Nirei, 2011. "Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments," Economics Working Papers ECO2011/25, European University Institute.
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