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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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282802760015667
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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. Marcelo L. Veracierto, 2002. "Plant-Level Irreversible Investment and Equilibrium Business Cycles," American Economic Review, American Economic Association, vol. 92(1), pages 181-197, March.
  14. Dow, James Jr. & Olson, Lars J., 1992. "Irreversibility and the behavior of aggregate stochastic growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 16(2), pages 207-223, April.
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  19. repec:cup:macdyn:v:1:y:1997:i:1:p:206-27 is not listed on IDEAS
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  21. Thomas, J.K., 1999. "Lumpy Investment, Partial Adjustment and the Business Cycle: A Reconciliation," GSIA Working Papers 1999-25, Carnegie Mellon University, Tepper School of Business.
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  24. Miquel Faig, 1997. "INVESTMENT IRREVERSIBILITY IN GENERAL EQUILIBRIUM: Capital Accumulation, Interest Rates, and the Risk Premium," Working Papers faig-97-01, University of Toronto, Department of Economics.
  25. Coleman Ii, Wilbur John, 1997. "Behavior Of Interest Rates In A General Equilibrium Multisector Model With Irreversible Investment," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 206-227, January.
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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