Investment, Capacity, and Uncertainty: A Putty-Clay Approach

36 Pages Posted: 10 May 2004 Last revised: 19 Jul 2010

See all articles by Simon Gilchrist

Simon Gilchrist

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

John C. Williams

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: April 2004

Abstract

We embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. In the presence of irreversible factor proportions, a mean-preserving spread in the productivity of investment raises aggregate investment, productivity, and output. Increases in uncertainty have important dynamic implications, causing sustained increases in investment and hours and a medium-term expansion in the growth rate of labor productivity.

Suggested Citation

Gilchrist, Simon and Williams, John C., Investment, Capacity, and Uncertainty: A Putty-Clay Approach (April 2004). NBER Working Paper No. w10446. Available at SSRN: https://ssrn.com/abstract=533005

Simon Gilchrist (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John C. Williams

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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