Lumpy Investment, Sectoral Propagation, and Business Cycles
AbstractThis paper proposes a model of endogenous fluctuations in investment. A monopolistic producer has an incentive to invest when the aggregate demand is high. This causes a propagation of investment across sectors. When the investment follows an (S,s) policy, the propagation size can exhibit a significant fluctuation. We characterize the probability distribution of the propagation size, and show that its variance can be large enough to match the observed investment fluctuations. We then implement this mechanism in a dynamic general equilibrium model to explore an investment-driven business cycle. By calibrating the model with the SIC 4-digit level industry data, we numerically show that the model replicates the basic structure of the business cycles
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 330.
Date of creation: 11 Aug 2004
Date of revision:
(S; s) policy; aggregation; propagation; heavy-tailed distribution;
Other versions of this item:
- Makoto Nirei, 2004. "Lumpy Investment, Sectoral Propagation, and Business Cycles," 2004 Meeting Papers 774, Society for Economic Dynamics.
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- 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-2004-07-26 (All new papers)
- NEP-CMP-2004-07-26 (Computational Economics)
- NEP-MAC-2004-07-26 (Macroeconomics)
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