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Investment Spikes: New Facts And A General Equilibrium Exploration

  • Francois Gourio

    ()

    (Boston University, Department of Economics)

  • Anil K Kashyap

Using plant-level data from Chile and the U.S., we show that investment spikes are highly pro-cyclical, so much so that changes in the number of establishments undergoing investment spikes (the “extensive margin”) account for the bulk of variation in aggregate investment. The number of establishments undergoing investment spikes also has independent predictive power for aggregate investment, even controlling for past investment and sales. We re-calibrate the Thomas (2002) model (that includes fixed costs of investing) so that it assigns a prominent role to extensive adjustment. The recalibrated model has different properties than the standard RBC model for some shocks.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2007-006.

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Length: 44 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:bos:wpaper:wp2007-006
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