CFDP 1566R

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


Publication Date: June 2006

Update Date: April 2010

Pages: 48


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.


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