Nonconvex Factor Adjustments in Equilibrium Business Cycle Models: Do Nonlinearities Matter?

Aubhik Khan and Julia Thomas

No 2000-E33, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: Using an equilibrium business cycle model, we search for agregate nonlinearities arising from the introduction of nonconvex capital adjustment costs. We find that, while such adjustment costs lead to nontrivial nonlinearities in aggregate investment demand, equilibrium investment is effectively unchanged. Our finding, based on a model where aggregate fluctuations arise through exogenous changes in total factor productivity, is robust to the introduction of shocks to the relative price of investment goods.

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Related works:
Journal Article: Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter? (2003)
Working Paper: Nonconvex factor adjustments in equilibrium business cycle models: Do nonlinearities matter? (2002)
Working Paper: Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter? (2000)
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