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Aggregate dynamics in lumpy economies

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In economies with lumpy microeconomic adjustment, we establish structural relationships between the dynamics of the cross-sectional distribution of agents and its steady-state counterpart and discipline these relationships using micro data. Applying our methodology to firm lumpy investment, we discover that the dynamics of aggregate capital are structurally linked to two cross-sectional moments of the capital-to-productivity ratio: its dispersion and its covariance with the time elapsed since the last adjustment. We compute these sufficient statistics using plant–level data on the size and frequency of investments. We find that, in order to explain investment dynamics, the benchmark model with fixed adjustment costs must also feature a precise combination of irreversibility and random opportunities of free adjustment.

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  • Isaac Baley & Andrés Blanco, 2019. "Aggregate dynamics in lumpy economies," Economics Working Papers 1670, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1670
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    9. Hong, Gee Hee & Klepacz, Matthew & Pasten, Ernesto & Schoenle, Raphael, 2023. "The real effects of monetary shocks: Evidence from micro pricing moments," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 1-20.
    10. Zhao Chen & Xian Jiang & Zhikuo Liu & Juan Carlos Suárez Serrato & Daniel Yi Xu, 2023. "Tax Policy and Lumpy Investment Behaviour: Evidence from China’s VAT Reform," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(2), pages 634-674.
    11. Luo, Shaowen & Villar, Daniel, 2023. "Propagation of shocks in an input-output economy: Evidence from disaggregated prices," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 26-46.
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    More about this item

    Keywords

    inaction; lumpiness; transitional dynamics; non convex adjustment costs; sufficient statistics; firm investment; adjustment hazard; Ss models.;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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