Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model
49 Pages Posted: 16 Jun 2008 Last revised: 2 Mar 2011
Date Written: June 1, 2010
The sensitivity of U.S. aggregate investment to shocks is procyclical: the response upon impact increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond explaining this specific time variation, ourmodel and evidence provide a counterexample to the claim that microeconomic investment lumpiness is inconsequential for macroeconomic analysis.
Keywords: Ss model, RBC model, Time-varying impulse response function, History dependence, Conditional heteroscedasticity, Aggregate shocks, Sectoral shocks, Idiosyncratic shocks, Adjustment costs
JEL Classification: E10, E22, E30, E32, E62
Suggested Citation: Suggested Citation