Investment Dispersion and the Business Cycle

Ruediger Bachmann and Christian Bayer

American Economic Review, 2014, vol. 104, issue 4, 1392-1416

Abstract: The cross-sectional dispersion of firm-level investment rates is procyclical. This makes investment rates different from productivity, output, and employment growth, which have countercyclical dispersions. A calibrated heterogeneous-firm business cycle model with nonconvex capital adjustment costs and countercyclical dispersion of firm-level productivity shocks replicates these facts and produces a correlation between investment dispersion and aggregate output of 0.53, close to 0.45 in the data. We find that small shocks to the dispersion of productivity, which in the model constitutes firm risk, suffice to generate the mildly procyclical investment dispersion in the data but do not produce serious business cycles.

JEL-codes: D42 D92 E32 G31 G32 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.4.1392
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Citations: View citations in EconPapers (95)

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Working Paper: Investment Dispersion and the Business Cycle (2011)
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