Investment Spikes: New Facts and a General Equilibrium Exploration
48 Pages Posted: 8 Aug 2008
Date Written: May 1, 2007
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: Suggested Citation