Investment and firm dynamics

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Investment and firm dynamics

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D'Erasmo, Pablo

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Pablo N. D'Erasmo

Abstract

In this paper I ask whether a model of ¯rm capital accumulation with entry and exit calibrated to match the investment regularities of U.S. establishments is capable of generating the dependence of ¯rm dynamics on size and age. Firms face uncertainty in the form of idiosyncratic productivity shocks and are subject to non-convex capital adjustment costs. I solve for the stationary equilibrium to show that the model can account for the simultaneous dependence of industry dynamics on size (once we condition on age) and on age (once we condition on size).

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3598.

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Date of creation: 01 Mar 2006
Date of revision: 12 Jul 2007
Handle: RePEc:pra:mprapa:3598

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-06-23 (All new papers)
NEP-BEC-2007-06-23 (Business Economics)
NEP-DGE-2007-06-23 (Dynamic General Equilibrium)
NEP-ENT-2007-06-23 (Entrepreneurship)
NEP-MAC-2007-06-23 (Macroeconomics)
NEP-TID-2007-06-23 (Technology & Industrial Dynamics)

References listed on IDEAS
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Other versions:
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Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-96, March. [Downloadable!] (restricted)
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Other versions:
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Other versions:
- Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Establishment Size Dynamics in the Aggregate Economy," American Economic Review, American Economic Association, vol. 97(5), pages 1639-1666, December.
Russell Cooper & John Haltiwanger & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September. [Downloadable!] (restricted)
Other versions:
- Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," Papers 0062, Boston University - Industry Studies Programme.
- Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," NBER Working Papers 5260, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-2), pages 1-54. [Downloadable!]
Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 707-712, May. [Downloadable!] (restricted)

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