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Plant-Level Irreversible Investment and Equilibrium Business Cycles

  • Marcelo L. Veracierto

This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real-business-cycle (RBC) model characterized by investment irreversibilities at the establishment level. The main finding is that investment irreversibilities do not play a significant role in an otherwise standard realbusiness-cycle model: Even though investment irreversibilities are crucial for establishment-level dynamics, aggregate fluctuations are basically the same under fully flexible or completely irreversible investment. (JEL E22, E32)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 92 (2002)
Issue (Month): 1 (March)
Pages: 181-197

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Handle: RePEc:aea:aecrev:v:92:y:2002:i:1:p:181-197
Note: DOI: 10.1257/000282802760015667
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  13. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
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  19. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
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