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Fixed costs and long-lived investments

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  • House, Christopher L.

Abstract

Fixed costs models are difficult to analyze because they feature non-degenerate, time-varying distributions of capital across firms. If investments are sufficiently long-lived however then the cross-sectional distribution of capital holdings has virtually no bearing on the equilibrium and the aggregate behavior of fixed-cost models is essentially identical to neoclassical models. The findings are due to a near infinite elasticity of investment timing for long-lived investments – a feature shared by fixed-cost models and neoclassical models. “Irrelevance results” found in numerical studies of fixed-cost models are not parametric special cases but instead are fundamental properties of models with long-lived investment goods.

Suggested Citation

  • House, Christopher L., 2014. "Fixed costs and long-lived investments," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 86-100.
  • Handle: RePEc:eee:moneco:v:68:y:2014:i:c:p:86-100
    DOI: 10.1016/j.jmoneco.2014.07.011
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    5. Boehm, Christoph E., 2020. "Government consumption and investment: Does the composition of purchases affect the multiplier?," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 80-93.
    6. Emre Ozdenoren & Kathy Yuan, 2017. "Contractual Externalities and Systemic Risk," Review of Economic Studies, Oxford University Press, vol. 84(4), pages 1789-1817.
    7. Woo, Jinhee, 2022. "The cyclicality of entry and exit: The role of imperfect information," Journal of Economic Dynamics and Control, Elsevier, vol. 137(C).
    8. David B. Cashin, 2017. "The Household Expenditure Response to a Consumption Tax Rate Increase," Finance and Economics Discussion Series 2017-035, Board of Governors of the Federal Reserve System (U.S.).
    9. Yashiv, Eran, 2016. "Aggregate hiring and the value of jobs along the business cycle," LSE Research Online Documents on Economics 86175, London School of Economics and Political Science, LSE Library.
    10. Jinhee Woo, 2020. "Policy Implications of Investment Rate Distributions in the Korean Manufacturing Sector," Korean Economic Review, Korean Economic Association, vol. 36, pages 445-480.

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