Nonconvex factor adjustments in equilibrium business cycle models: Do nonlinearities matter?

Aubhik Khan and Julia Thomas

No 306, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Recent empirical analysis has found nonlinearities to be important in understanding aggregated investment. Using an equilibrium business cycle model, we search for aggregate nonlinearities arising from the introduction of nonconvex capital adjustment costs. We find that, while such costs lead to nontrivial nonlinearities in aggregate investment demand, equilibrium investment is effectively unchanged. Our finding, based on a model in which aggregate fluctuations arise through exogenous changes in total factor productivity, is robust to the introduction of shocks to the relative price of investment goods.

Keywords: Econometric models; Business cycles; Equilibrium (Economics) (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (5)

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Journal Article: Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter? (2003)
Working Paper: Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter? (2000)
Working Paper: Nonconvex Factor Adjustments in Equilibrium Business Cycle Models: Do Nonlinearities Matter?
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:306

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