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Investment, Capacity, and Uncertainty: A Putty-Clay Approach

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  • Simon Gilchrist
  • John C. Williams

Abstract

We embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. In the presence of irreversible factor proportions, a mean-preserving spread in the productivity of investment raises aggregate investment, productivity, and output. Increases in uncertainty have important dynamic implications, causing sustained increases in investment and hours and a medium-term expansion in the growth rate of labor productivity.

Suggested Citation

  • Simon Gilchrist & John C. Williams, 2004. "Investment, Capacity, and Uncertainty: A Putty-Clay Approach," NBER Working Papers 10446, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10446
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    Cited by:

    1. Segal, Gill & Shaliastovich, Ivan & Yaron, Amir, 2015. "Good and bad uncertainty: Macroeconomic and financial market implications," Journal of Financial Economics, Elsevier, vol. 117(2), pages 369-397.
    2. Gourio, Francois & Kashyap, Anil K, 2007. "Investment spikes: New facts and a general equilibrium exploration," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 1-22, September.
    3. Caggiano, Giovanni & Castelnuovo, Efrem & Groshenny, Nicolas, 2014. "Uncertainty shocks and unemployment dynamics in U.S. recessions," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 78-92.
    4. Martial Dupaigne, 2007. "Les variations choisies de l'utilisation du capital : une revue des implications macroéconomiques," Revue d'économie politique, Dalloz, vol. 117(2), pages 161-196.
    5. Oikawa, Koki, 2010. "Uncertainty-driven growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 897-912, May.
    6. Netšunajev, Aleksei & Glass, Katharina, 2017. "Uncertainty and employment dynamics in the euro area and the US," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 48-62.
    7. Jean‐Marc Natal, 2012. "Monetary Policy Response to Oil Price Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(1), pages 53-101, February.
    8. Ishise, Hirokazu, 2016. "Capital heterogeneity as a source of comparative advantage: Putty-clay technology in a ricardian model," Journal of International Economics, Elsevier, vol. 99(C), pages 223-236.
    9. Thomas Gries & Stefan Jungblut & Tim Krieger & Henning Meyer, 2016. "Economic Retirement Age and Lifelong Learning - a theoretical model with heterogeneous labor, biased technical change and international sourcing," CESifo Working Paper Series 6257, CESifo Group Munich.
    10. Thomas Gries & Stefan Jungblut & Tim Krieger & Henning Meier, 2009. "Statutory Retirement Age and Lifelong Learning," Working Papers CIE 9, Paderborn University, CIE Center for International Economics.
    11. Førsund, Finn R. & Vislie, Jon, 2016. "Leif Johansen on intra-industry structural change," Journal of Policy Modeling, Elsevier, vol. 38(3), pages 515-527.
    12. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
    13. R. Førsund, Finn & Vislie, Jon, 2011. "From Macro Growth to Disaggregated Production Studies," Memorandum 22/2011, Oslo University, Department of Economics.
    14. van Zon, Adriaan & Lontzek, Thomas S., 2008. "R&D-driven biases in energy-saving technical change: A putty-practically-clay approach," Kiel Working Papers 1474, Kiel Institute for the World Economy (IfW).
    15. Scott R. Baker & Nicholas Bloom, 2013. "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments," CEP Discussion Papers dp1243, Centre for Economic Performance, LSE.
    16. Piero Ferri & Annalisa Cristini & Anna Maria Variato, 2016. "Endogenous fluctuations, markups, capacity and credit constraints," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 11(2), pages 273-292, October.
    17. Gill Segal & Ivan Shaliastovich & Amir Yaron, 2014. "Good and Bad Uncertainty: Macroeconomic and Financial Market Implications," 2014 Meeting Papers 488, Society for Economic Dynamics.
    18. Pelli, Martino & Tschopp, Jeanne, 2017. "Comparative advantage, capital destruction, and hurricanes," Journal of International Economics, Elsevier, vol. 108(C), pages 315-337.
    19. Fahr, Stephan & Yao, Fang, 2009. "When does lumpy factor adjustment matter for aggregate dynamics?," Working Paper Series 1016, European Central Bank.
    20. Peter Claeys & Borek Vasicek, 2017. "Transmission of Uncertainty Shocks: Learning from Heterogeneous Responses on a Panel of EU Countries," Working Papers 2017/13, Czech National Bank, Research Department.
    21. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE.
    22. Plante, Michael D. & Traum, Nora, 2012. "Time-varying oil price volatility and macroeconomic aggregates," Working Papers 1201, Federal Reserve Bank of Dallas.
    23. Chao Wei, 2013. "A Dynamic General Equilibrium Model of Driving, Gasoline Use and Vehicle Fuel Efficiency," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 650-667, October.
    24. Matthias Meier & Ariel Mecikovsky & Christian Bayer, 2014. "Dynamics of Factor Productivity Dispersions," 2014 Meeting Papers 719, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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