An Empirical Study of Interaction-Based Aggregate Investment Fluctuations

Luigi Guiso, Chaoqun Lai and Makoto Nirei
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Chaoqun Lai: Utah State University

The Japanese Economic Review, 2017, vol. 68, issue 2, No 2, 137-157

Abstract: Abstract This paper argues that interactions of firms account for a sizable part of fluctuations in aggregate investments without exogenous aggregate shocks. We first establish empirically that the fraction of firms that engage in a lumpy investment follows a non-normal, two-sided exponential distribution across region-year with a panel data set of Italian firms. We then present a simple sectoral model that generates the two-sided exponential distribution that arises from the complementarity of the firms’ lumpy investments within a region. Calibrated by the firm-level estimate of complementarity, the model is capable of generating the two-sided exponential fluctuations observed at the aggregate level.

Keywords: L16; E22 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1111/jere.12088

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