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Lumpy investment in sticky information general equilibrium

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  • Fabio Verona

    ()
    (Universidade do Porto, Faculdade de Economia and CEF.UP)

Abstract

This paper introduces lumpy micro-level investment into a sticky information general equilibrium model. Lumpy investment arises because of inattentiveness in capital investment decisions instead of the more popular assumption of non-convex adjustment costs. Sticky information is the only source of rigidity in the model and it is pervasive to all markets and decisions. The model yields aggregate dynamics that are substantially different from those of an otherwise identical model with frictionless investment, and much closer to the empirical evidence. These results therefore strengthen the case for the relevance of lumpy micro-level investment for the business cycle.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 1102.

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Length: 42 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:por:cetedp:1102

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Keywords: Sticky information; lumpy investment; general equilibrium; business cycles;

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References

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  5. Verona, Fabio & Wolters, Maik H., 2013. "Sticky information models in Dynare," Research Discussion Papers 5/2013, Bank of Finland.
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  26. Verona, Fabio, 2012. "Lumpy investment in sticky information general equilibrium," IMFS Working Paper Series 55, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  27. Ruediger Bachmann & Ricardo J. Caballero & Eduardo Engel, 2008. "Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model," Cowles Foundation Discussion Papers 1566R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2010.
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Cited by:
  1. Verona, Fabio & Wolters, Maik H., 2012. "Sticky Information Models in Dynare," Dynare Working Papers 11, CEPREMAP, revised Apr 2013.
  2. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.
  3. Fabio Verona, 2011. "Lumpy investment in sticky information general equilibrium," CEF.UP Working Papers 1102, Universidade do Porto, Faculdade de Economia do Porto.

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