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

  • Luigi Guiso
  • Chaoqun Lai
  • Makoto Nirei

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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Paper provided by European University Institute in its series Economics Working Papers with number ECO2011/25.

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Date of creation: 2011
Date of revision:
Handle: RePEc:eui:euiwps:eco2011/25
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