Investment Spikes: New Facts and a General Equilibrium Exploration
Anil K. Kashyap
University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago
May 1, 2007
Chicago GSB Research Paper No. 7
Using plant-level data from Chile and the U.S. we show that investment spikes are highly pro-cyclical, so much so that changes in the number of establishments undergoing investment spikes (the "extensive margin") account for the bulk of variation in aggregate investment. The number of establishments undergoing investment spikes also has independent predictive power for aggregate investment, even controlling for past investment and sales. We re-calibrate the Thomas (2002) model (that includes fixed costs of investing) so that it assigns a prominent role to extensive adjustment. The recalibrated model has different properties than the standard RBC model for some shocks.
Number of Pages in PDF File: 48
Keywords: adjustment costs, investment, investment tax credit, fixed costs, extensive margin
JEL Classification: E22, E32
Date posted: August 8, 2008
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