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Aggregate Fluctuations of Discrete Investments

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  • Nirei, Makoto

Abstract

This 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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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16387/1/070iirWP08_08.pdf
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Bibliographic Info

Paper provided by Institute of Innovation Research, Hitotsubashi University in its series IIR Working Paper with number 08-08.

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Length: 52 p.
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:hit:iirwps:08-08

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Related research

Keywords: Lumpy investment; (S; s) economy; strategic complementarity; self-organized criticality; fat-tailed distribution;

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Cited by:
  1. 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.

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