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Endogenous Fluctuations of Investment and Output in a Model of Discrete Capital Adjustments

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  • Nirei, Makoto

Abstract

This paper presents a model of endogenous fluctuations of investment and output at the business cycles frequencies. Aggregate investments fluctuate endogenously due to the strategic complementarity of micro-level lumpy investments. The investment fluctuations are transmitted to the output via variable utilization of capital. Simulations show that there is a range of parameter values under with the model economy exhibits a large magnitude of fluctuations and comovements in investment and output.

Suggested Citation

  • Nirei, Makoto, 2009. "Endogenous Fluctuations of Investment and Output in a Model of Discrete Capital Adjustments," IIR Working Paper 09-01, Institute of Innovation Research, Hitotsubashi University.
  • Handle: RePEc:hit:iirwps:09-01
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    Keywords

    business cycles; lumpy investment; variable capacity utilization; nonlinear dynamics;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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