CFDP 1566R

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

Author(s): 

Publication Date: June 2006

Update Date: April 2010

Pages: 48

Abstract: 

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, our model 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

JEL Classification Codes:  E10, E22, E30, E32, E62