‘Wait-and-See’ business cycles?

Ruediger Bachmann and Christian Bayer

Journal of Monetary Economics, 2013, vol. 60, issue 6, 704-719

Abstract: Are shocks to firms' profitability risk, propagated by physical capital adjustment costs, a major source of business cycle fluctuations? This paper studies this question using a heterogeneous-firm dynamic stochastic general equilibrium model, where firms face fixed capital adjustment costs. Surprise increases in idiosyncratic risk lead firms to adopt a ‘wait-and-see’ policy for investment. The model is calibrated using a German firm-level data set with broader coverage than comparable U.S. data sets. The main result is that time-varying firm-level risk through ‘wait-and-see’ dynamics is unlikely a major source of business cycle fluctuations.

Date: 2013
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Citations: View citations in EconPapers (153)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:6:p:704-719

DOI: 10.1016/j.jmoneco.2013.05.005

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