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Investment, Capacity, and Uncertainty: A Putty-Clay Approach

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  • Simon Gilchrist
  • John C. Williams

Abstract

We embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. In the presence of irreversible factor proportions, a mean-preserving spread in the productivity of investment raises aggregate investment, productivity, and output. Increases in uncertainty have important dynamic implications, causing sustained increases in investment and hours and a medium-term expansion in the growth rate of labor productivity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10446.

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Date of creation: Apr 2004
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Handle: RePEc:nbr:nberwo:10446

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  1. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
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  4. Simon Gilchrist & John C. Williams, 2001. "Transition dynamics in vintage capital models: explaining the postwar catch-up of Germany and Japan," Working Papers 01-1, Federal Reserve Bank of Boston.
  5. Jeffrey R. Campbell & Jonas D. M. Fisher, 2004. "Idiosyncratic Risk and Aggregate Employment Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 331-353, April.
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  8. Raouf Boucekkine & Marc Germain & Omar Licandro, . "Replacement echoes in the vintage capital growth model," Working Papers 96-16, FEDEA.
  9. Patrick J. Kehoe & Andrew Atkeson, 1999. "Models of Energy Use: Putty-Putty versus Putty-Clay," American Economic Review, American Economic Association, vol. 89(4), pages 1028-1043, September.
  10. Cooley, Thomas F & Hansen, Gary D & Prescott, Edward C, 1995. "Equilibrium Business Cycles with Idle Resources and Variable Capacity Utilization," Economic Theory, Springer, vol. 6(1), pages 35-49, June.
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  12. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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Cited by:
  1. Francois Gourio & Anil K Kashyap, 2007. "Investment Spikes: New Facts And A General Equilibrium Exploration," Boston University - Department of Economics - Working Papers Series WP2007-006, Boston University - Department of Economics.
  2. Oikawa, Koki, 2010. "Uncertainty-driven growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 897-912, May.
  3. Stephan Fahr & Fang Yao, 2009. "When does Lumpy Factor Adjustment Matter for Aggregate Dynamics?," Working Paper Series 1016, European Central Bank.
  4. Jean-Marc Natal, 2009. "Monetary policy response to oil price shocks," Working Paper Series 2009-16, Federal Reserve Bank of San Francisco.
  5. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE.
  6. Chao Wei, . "A Dynamic General Equilibrium Model of Driving, Gasoline Use and Vehicle Fuel Efficiency," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  7. R. Førsund, Finn & Vislie, Jon, 2011. "From Macro Growth to Disaggregated Production Studies," Memorandum 22/2011, Oslo University, Department of Economics.

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