Detecting Endogenous Effects by Aggregate Distributions: A Case of Lumpy Investments

Chaoqun Lai, 誠 楡井 and Makoto Nirei

No 09-03, IIR Working Paper from Institute of Innovation Research, Hitotsubashi University

Abstract: This paper studies the effect of strategic complementarity among firms' lumpy investments on the fluctuations of aggregate investments. We investigate an extensive panel data set on Italian manufacturing firms. We first show that the fluctuations of fraction of firms that experience large investment rates in a region-year follow a double-exponential distribution. We then estimate the degree of the strategic complementarity within a region directly by estimating the firm's decision on lumpy investments. We propose a simple sectoral model which is capable of generating the double-exponential distribution for the aggregate fluctuations that arise from the strategic complementarity among firms' lumpy investments. We argue that the shape and magnitude of the aggregate fluctuations observed in the data are consistent with the degree of strategic complementarity estimated at the micro-level in the same data.

Keywords: Strategic complementarity; endogenous effect; non-Gaussian fluctuations (search for similar items in EconPapers)
JEL-codes: E22 L16 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-05
New Economics Papers: this item is included in nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:hit:iirwps:09-03

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