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Fixed costs and long-lived investments

Christopher L. House

Journal of Monetary Economics, 2014, vol. 68, issue C, 86-100

Abstract: Fixed costs models are difficult to analyze because they feature non-degenerate, time-varying distributions of capital across firms. If investments are sufficiently long-lived however then the cross-sectional distribution of capital holdings has virtually no bearing on the equilibrium and the aggregate behavior of fixed-cost models is essentially identical to neoclassical models. The findings are due to a near infinite elasticity of investment timing for long-lived investments – a feature shared by fixed-cost models and neoclassical models. “Irrelevance results” found in numerical studies of fixed-cost models are not parametric special cases but instead are fundamental properties of models with long-lived investment goods.

Keywords: Fixed costs; Aggregation; Irrelevance; Elasticity of investment demand (search for similar items in EconPapers)
Date: 2014
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