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A Q-theory model with lumpy investment

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  • Jianjun Miao
  • Pengfei Wang

Abstract

We present an analytically tractable dynamic stochastic general equilibrium model that incorporates micro-level fixed and convex adjustment costs. We provide an explicit characterization of equilibrium dynamics by a system of nonlinear stochastic difference equations. We provide general conditions under which our model features investment lumpiness at the microeconomic level, but aggregate dynamics are isomorphic to those in a Q-theory model without fixed costs. This theoretical result is independent of the specification of the fixed cost distribution and also holds true when firms face persistent idiosyncratic productivity shocks. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Jianjun Miao & Pengfei Wang, 2014. "A Q-theory model with lumpy investment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 133-159, September.
    • Handle: RePEc:spr:joecth:v:57:y:2014:i:1:p:133-159
    DOI: 10.1007/s00199-013-0794-7
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    1. Michael K. Johnston & Robert G. King & Denny Lie, 2014. "Straightforward approximate stochastic equilibria for nonlinear rational expectations models," CAMA Working Papers 2014-59, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. House, Christopher L., 2014. "Fixed costs and long-lived investments," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 86-100.
    3. Robert Akerlof & Richard Holden, 2016. "Movers and Shakers," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1849-1874.

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    More about this item

    Keywords

    Generalized (S; s) rule; Lumpy investment; General equilibrium; Business cycles; Marginal Q; Adjustment costs; E22; E32;
    All these keywords.

    JEL classification:

    • 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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