Lumpy Investment and State-Dependent Pricing in General Equilibrium

Michael Reiter, Tommy Sveen () and Lutz Weinke
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Michael Reiter: Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria
Lutz Weinke: Department of Economics, Duke University, Durham, NC, USA and Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria

No 239, Economics Series from Institute for Advanced Studies

Abstract: The lumpy nature of plant-level investment is generally not taken into account in the context of monetary theory (see, e.g., Christiano et al. 2005 and Woodford 2005). We formulate a generalized (S,s) pricing and investment model which is empirically more plausible along that dimension. Surprisingly, our main result shows that the presence of lumpy investment casts doubt on the ability of sticky prices to imply a quantitatively relevant monetary transmission mechanism.

Keywords: Lumpy investment; Sticky prices (search for similar items in EconPapers)
JEL-codes: E22 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
Date: 2009-05

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http://www.ihs.ac.at/publications/eco/es-239.pdf First version, 2009 (application/pdf)

Related works:
Working Paper: Lumpy investment and state-dependent pricing in general equilibrium (2009)
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