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Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments

  • Luigi Guiso

    (European University Institute and EIEF)

  • Chaoqun Lai

    (Utah State University)

  • Makoto Mirei

    (Hitotsubashi University)

By using an extensive panel data set of Italian firms, we show empirically that the fraction of firms that engage in a lumpy investment follows a non-normal, double-exponential distribution across region-year. We propose a simple sectoral model that generates the double-exponential distribution that arises from the complementarity of the firms' lumpy investments within a region. We calibrate the degree of complementarity by estimating an individual firm's behavior with the firm-level data. Simulations show that the degree of complementarity estimated at the firm level is consistent with the double-exponential fluctuations observed at the aggregate level.

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File URL: http://www.eief.it/files/2012/09/wp-12-detecting-propagation-effects-by-observing-aggregate-distributions_the-case-of-lumpy-investments.pdf
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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1112.

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Length: 47 pages
Date of creation: 2011
Date of revision: Jun 2011
Handle: RePEc:eie:wpaper:1112
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