The Macroeconomics of Irreversibility

Andrés Blanco and Isaac Baley

No 1312, Working Papers from Barcelona School of Economics

Abstract: We study aggregate capital dynamics in an investment model with idiosyncratic productivity shocks, fixed capital adjustment costs, and irreversibility driven by a wedge between capital purchase and resale prices. We derive sufficient statistics capturing the role of investment frictions on aggregate capital fluctuations, measure these statistics with investment microdata, and exploit them to discipline the capital price wedge. Irreversibility doubles the persistence of capital fluctuations and is crucial for reconciling micro-level investment behavior with macroeconomic propagation.

Keywords: irreversibility; transitional dynamics; inaction; lumpiness; investment frictions; fixed adjustment costs; capital misallocation; Tobin's q; propagation; corporate taxes (search for similar items in EconPapers)
JEL-codes: D30 D80 E20 E30 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (1)

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Working Paper: The Macroeconomics of Irreversibility (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1312

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