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http://ssrn.com/abstract=2122940
 
 

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Long Run Productivity Risk and Aggregate Investment


Jack Favilukis


London School of Economics & Political Science (LSE)

Xiaoji Lin


Ohio State University (OSU) - Fisher College of Business

March 26, 2012

Fisher College of Business Working Paper No. 2012-03-014
Charles A. Dice Center Working Paper No. 2012-14

Abstract:     
What are the implications of long-run productivity risk - shocks to the growth rate of productivity - for aggregate investment in a DSGE model? We offer an alternative to microfrictions explanation of aggregate investment non-linearities, in particular the heteroscedasticity of investment rate. Additionally, consistent with the data, these shocks imply that investment rate is history dependent (rising through expansions), its growth is positively autocorrelated, and it is positively correlated with output growth at various leads and lags. A standard model with shocks to the level of productivity either predicts opposite investment behavior or fails to quantitatively capture these features in the data.

Number of Pages in PDF File: 63

Keywords: Nonlinearities, Investment, History Dependence, Heteroscedasticity

JEL Classification: E22, E23, E44

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Date posted: August 3, 2012 ; Last revised: March 27, 2013

Suggested Citation

Favilukis, Jack and Lin, Xiaoji, Long Run Productivity Risk and Aggregate Investment (March 26, 2012). Fisher College of Business Working Paper No. 2012-03-014. Available at SSRN: http://ssrn.com/abstract=2122940 or http://dx.doi.org/10.2139/ssrn.2122940

Contact Information

Jack Favilukis (Contact Author)
London School of Economics & Political Science (LSE) ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
Xiaoji Lin
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
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