Lumpy investment in sticky information general equilibrium

Fabio Verona

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper introduces lumpy micro-level investment into a sticky information general equilibrium model. Lumpy investment arises because of inattentiveness in capital investment decisions instead of the more popular assumption of non-convex adjustment costs. Sticky information is the only source of rigidity in the model and it is pervasive to all markets and decisions. The model yields aggregate dynamics that are substantially different from those of an otherwise identical model with frictionless investment, and much closer to the empirical evidence. These results therefore strengthen the case for the relevance of lumpy micro-level investment for the business cycle.

Keywords: Sticky information; lumpy investment; general equilibrium; business cycles (search for similar items in EconPapers)
JEL-codes: E10 E22 E30 E32 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2011-06
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Lumpy investment in sticky information general equilibrium (2013)
Working Paper: Lumpy investment in sticky information general equilibrium (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:por:cetedp:1102

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