Investment Spikes: New Facts and a General Equilibrium Exploration

48 Pages Posted: 8 Aug 2008

See all articles by Francois Gourio

Francois Gourio

Federal Reserve Bank of Chicago

Anil K. Kashyap

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

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Date Written: May 1, 2007

Abstract

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.

Keywords: adjustment costs, investment, investment tax credit, fixed costs, extensive margin

JEL Classification: E22, E32

Suggested Citation

Gourio, Francois and Kashyap, Anil K., Investment Spikes: New Facts and a General Equilibrium Exploration (May 1, 2007). Chicago GSB Research Paper No. 7, Available at SSRN: https://ssrn.com/abstract=1211117 or http://dx.doi.org/10.2139/ssrn.1211117

Francois Gourio

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