Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments

Luigi Guiso, Chaoqun Lai and Makoto Nirei

No ECO2011/25, Economics Working Papers from European University Institute

Abstract: By using an extensive panel data set of Italian firms, we show empirically that the fraction of firms that engage in a lumpy investment follows a non-normal, double-exponential distribution across region-year. We propose a simple sectoral model that generates the double-exponential distribution that arises from the complementarity of the firms' lumpy investments within a region. We calibrate the degree of complementarity by estimating an individual firm's behavior with the firm-level data. Simulations show that the degree of complementarity estimated at the firm level is consistent with the double-exponential fluctuations observed at the aggregate level.

Keywords: Interaction models; strategic complementarity; propagation effect; non-Gaussian uctuations; double-exponential distribution (search for similar items in EconPapers)
JEL-codes: E22 L16 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://cadmus.eui.eu/bitstream/handle/1814/18095/ECO_2011_25.pdf?sequence=1 main text

Related works:
Working Paper: Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2011/25

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Cécile Brière ().