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Aggregate Fluctuations of Discrete Investments

Makoto Nirei ()

No 08-08, IIR Working Paper from Institute of Innovation Research, Hitotsubashi University

Abstract: This paper demonstrates endogenous fluctuations of aggregate investments when firm-level investments follow an (S,s) policy and exhibit strategic complementarity. We present a method to characterize the aggregate fluctuations that arise from the interaction of the (S,s) policies. A closed-form distribution function of the output growth rate is derived in general environments. We show that the growth rate has a strictly positive variance even when the number of firms tends to infinity if the production exhibits constant returns to scale and the real wage and interest rate are fixed.

Keywords: Lumpy investment; (S; s) economy; strategic complementarity; self-organized criticality; fat-tailed distribution (search for similar items in EconPapers)
JEL-codes: E22 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mac
Date: 2008-12
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