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Striking While the Iron Is Cold: Fragility after a Surge of Lumpy Investments

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  • Lee, Hanbaek

Abstract

This paper studies the endogenous state dependence of the aggregate investment dynamics stemming from synchronized lumpy investments at the firm level. I develop a heterogeneous-firm real business cycle model where the semi-elasticities of large and small firms’ investments are matched with the empirical estimates. In the model, following a negative TFP shock, the timings of large firms’ lumpy investments are persistently synchronized due to the low sensitivity to the general equilibrium effect, leading to a surge of lumpy investments. After the surge, TFP-induced recessions are especially severe, and the semi-elasticity of the aggregate investment drops significantly.

Suggested Citation

  • Lee, Hanbaek, 2022. "Striking While the Iron Is Cold: Fragility after a Surge of Lumpy Investments," MPRA Paper 115872, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115872
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    References listed on IDEAS

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    Cited by:

    1. Lee, Hanbaek, 2022. "Repeated Transition Method and the Nonlinear Business Cycle with the Corporate Saving Glut," MPRA Paper 115887, University Library of Munich, Germany.

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    More about this item

    Keywords

    Business cycle; state dependence; lumpy investment; interest-elasticity.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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