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Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model

Author

Listed:
  • R?diger Bachmann
  • Ricardo J. Caballero
  • Eduardo M. R. A. Engel

Abstract

The sensitivity of US aggregate investment to shocks is procyclical. The response upon impact increases by approximately 50 percent from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond explaining this specific time variation, our model and evidence provide a counterexample to the claim that microeconomic investment lumpiness is inconsequential for macroeconomic analysis.

Suggested Citation

  • R?diger Bachmann & Ricardo J. Caballero & Eduardo M. R. A. Engel, 2013. "Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 29-67, October.
    • Handle: RePEc:aea:aejmac:v:5:y:2013:i:4:p:29-67
    Note: DOI: 10.1257/mac.5.4.29
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    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • 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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    1. Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model (AEJ:MA 2013) in ReplicationWiki

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