Lumpy Investment, Business Cycles, and Stimulus Policy

Thomas Winberry

American Economic Review, 2021, vol. 111, issue 1, 364-96

Abstract: I study the aggregate implications of micro-level lumpy investment in a model consistent with the empirical dynamics of the real interest rate. The elasticity of aggregate investment with respect to shocks is procyclical because more firms are likely to make an extensive margin investment in expansions than in recessions. Matching the dynamics of the real interest rate is key to generating this result because it disciplines the interest-elasticity of investment and avoids counterfactual behavior of the model that would otherwise eliminate most of the procyclical responsiveness. Therefore, data on interest rates place important discipline in aggregating micro-level investment behavior.

JEL-codes: D25 E13 E22 E23 E43 G31 H25 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (17)

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DOI: 10.1257/aer.20161723

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