Lumpy Investment and State-Dependent Pricing in General Equilibrium
AbstractThe lumpy nature of plant-level investment is generally not taken into account in the context of monetary theory (see, e.g., Christiano et al. 2005 and Woodford 2005). We formulate a generalized (S,s) pricing and investment model which is empirically more plausible along that dimension. Surprisingly, our main result shows that the presence of lumpy investment casts doubt on the ability of sticky prices to imply a quantitatively relevant monetary transmission mechanism.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 239.
Length: 26 pages
Date of creation: May 2009
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Other versions of this item:
- Michael Reiter & Tommy Sveen & Lutz Weinke, 2009. "Lumpy investment and state-dependent pricing in general equilibrium," Working Paper 2009/05, Norges Bank.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- 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-2009-05-23 (All new papers)
- NEP-CBA-2009-05-23 (Central Banking)
- NEP-DGE-2009-05-23 (Dynamic General Equilibrium)
- NEP-MAC-2009-05-23 (Macroeconomics)
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- Michael Reiter, 2009. "Approximate Aggregation in Heterogeneous-Agent Models," 2009 Meeting Papers 733, Society for Economic Dynamics.
- Reiter, Michael, 2010. "Approximate and Almost-Exact Aggregation in Dynamic Stochastic Heterogeneous-Agent Models," Economics Series 258, Institute for Advanced Studies.
- Michael K. Johnston, 2009. "Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment," Working Papers 09-36, Bank of Canada.
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