Investment Dispersion and the Business Cycle
We document a new business cycle fact: the cross-sectional standard deviation of firm-level investment (investment dispersion) is robustly and significantly procyclical. This makes investment dispersion different from the dispersion of productivity and output growth, which is countercyclical. Investment dispersion is more procyclical in the goods-producing sectors, for smaller firms and for structures. We show that a heterogeneous-firm real business cycle model with countercyclical idiosyncratic firm risk and non-convex adjustment costs calibrated to match moments of the long-run investment rate distribution, produces a time series correlation coefficient between investment dispersion and aggregate output of 0.58, close to the 0.45 in the data. We argue, more generally, that cross-sectional business cycle dynamics impose tight empirical restrictions on the physical environments and the structural parameters of heterogeneous-firm models.
|Date of creation:||Mar 2011|
|Date of revision:|
|Publication status:||published as R?diger Bachmann & Christian Bayer, 2014. "Investment Dispersion and the Business Cycle," American Economic Review, American Economic Association, vol. 104(4), pages 1392-1416, April.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James Levinsohn & Amil Petrin, 2003.
"Estimating Production Functions Using Inputs to Control for Unobservables,"
Review of Economic Studies,
Wiley Blackwell, vol. 70(2), pages 317-341, 04.
- James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Den Haan, Wouter J., 2010.
"Assessing the accuracy of the aggregate law of motion in models with heterogeneous agents,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 34(1), pages 79-99, January.
- Den Haan, Wouter, 2008. "Assessing the Accuracy of the Aggregate Law of Motion in Models with Heterogeneous Agents," CEPR Discussion Papers 6971, C.E.P.R. Discussion Papers.
- Per Krusell & Anthony A. Smith, Jr., .
"Income and Wealth Heterogeneity in the Macroeconomy,"
GSIA Working Papers
1997-37, Carnegie Mellon University, Tepper School of Business.
- Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
- Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
- von Kalckreuth, Ulf, 2000.
"Exploring the role of uncertainty for corporate investment decisions in Germany,"
Discussion Paper Series 1: Economic Studies
2000,05, Deutsche Bundesbank, Research Centre.
- Ulf von Kalckreuth, 2003. "Exploring the role of uncertainty for corporate investment decisions in Germany," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 173-206, June.
- Bayer, Christian, 2006. "Investment dynamics with fixed capital adjustment cost and capital market imperfections," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1909-1947, November.
- Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
- Salvador Navarro & David Rivers & Amit Gandhi, 2012.
"On the Identification of Production Functions: How Heterogeneous is Productivity?,"
2012 Meeting Papers
105, Society for Economic Dynamics.
- Amit Gandhi & Salvador Navarro & David Rivers, 2011. "On the Identification of Production Functions: How Heterogeneous is Productivity?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20119, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
- James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16861. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.