Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments

Luigi Guiso (), Chaoqun Lai and Makoto Nirei ()

No ECO2011/25, Economics Working Papers from European University Institute

Abstract: By using an extensive panel data set of Italian firms, we show empirically that the fraction of firms that engage in a lumpy investment follows a non-normal, double-exponential distribution across region-year. We propose a simple sectoral model that generates the double-exponential distribution that arises from the complementarity of the firms' lumpy investments within a region. We calibrate the degree of complementarity by estimating an individual firm's behavior with the firm-level data. Simulations show that the degree of complementarity estimated at the firm level is consistent with the double-exponential fluctuations observed at the aggregate level.

Keywords: Interaction models; strategic complementarity; propagation effect; non-Gaussian uctuations; double-exponential distribution (search for similar items in EconPapers)
JEL-codes: L16 E22 (search for similar items in EconPapers)
Date: 2011
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Working Paper: Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2011/25

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