Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model
51 Pages Posted: 14 Jul 2006 Last revised: 17 Sep 2022
Date Written: June 2006
The sensitivity of U.S. aggregate investment to shocks is procyclical: the initial response 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, our model and evidence provide a counterexample to the claim that microeconomic investment lumpiness is inconsequential for macroeconomic analysis.
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