Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model

51 Pages Posted: 14 Jul 2006 Last revised: 17 Sep 2022

See all articles by Ruediger Bachmann

Ruediger Bachmann

Yale University

Eduardo M. R. A. Engel

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

Ricardo J. Caballero

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: June 2006

Abstract

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.

Suggested Citation

Bachmann, Ruediger and Engel, Eduardo M. and Caballero, Ricardo J., Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model (June 2006). NBER Working Paper No. w12336, Available at SSRN: https://ssrn.com/abstract=912446

Ruediger Bachmann

Yale University ( email )

New Haven, CT 06520
United States

Eduardo M. Engel

Yale University - Department of Economics ( email )

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Ricardo J. Caballero (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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