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Investment, Capacity, and Uncertainty: A Putty-Clay Approach

Simon Gilchrist () and John Williams ()

No 10446, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. In the presence of irreversible factor proportions, a mean-preserving spread in the productivity of investment raises aggregate investment, productivity, and output. Increases in uncertainty have important dynamic implications, causing sustained increases in investment and hours and a medium-term expansion in the growth rate of labor productivity.

JEL-codes: D24 E22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2004-04
Note: ME
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Published as Gilchrist, Simon and John C. Williams. "Investment, Capacity, And Uncertainty: A Putty-Clay Approach," Review of Economic Dynamics, 2005, v8(1,Jan), 1-27.

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Journal Article: Investment, Capacity, and Uncertainty: A Putty-Clay Approach (2005) Downloads
Working Paper: Investment, capacity, and uncertainty: a putty-clay approach (2002) Downloads
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