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Idiosyncratic Shocks, Lumpy Investment and the Monetary Transmission Mechanism

Author

Listed:
  • Reiter, Michael

    (Institute for Advanced Studies, Vienna, and NYU Abu Dhabi)

  • Sveen, Tommy

    (BI Norwegian Business School)

  • Weinke, Lutz

    (Humboldt-Universitaet zu Berlin)

Abstract

Standard (S,s) models of lumpy investment allow us to match many aspects of the micro data, but it is well known that the implied interest rate sensitivity of investment is unrealistically large. The monetary transmission mechanism is therefore a particularly clean experiment to assess the macroeconomic relevance of any investment theory. Our results show that lumpy investment can coexist with a realistic monetary transmission mechanism, but that we are nevertheless still a step away from a micro-founded theory of monetary policy.

Suggested Citation

  • Reiter, Michael & Sveen, Tommy & Weinke, Lutz, 2020. "Idiosyncratic Shocks, Lumpy Investment and the Monetary Transmission Mechanism," IHS Working Paper Series 16, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihswps:16
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    File URL: https://irihs.ihs.ac.at/id/eprint/5377/
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    References listed on IDEAS

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    More about this item

    Keywords

    Lumpy Investment; Sticky Prices;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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