Lumpy investment in sticky information general equilibrium

Fabio Verona

No 55, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: In this paper, I introduce lumpy micro-level capital adjustment into a sticky information general equilibrium model. Lumpy adjustment arises because of inattentiveness in capital investment decisions instead of the more common assumption of non-convex adjustment costs. The model features inattentiveness as the only source of stickiness. I find that the model with lumpy investment yields business cycle dynamics which differ substantially from those of an otherwise identical model with frictionless investment and are much more consistent with the empirical evidence. These results therefore strengthen the case in favour of the relevance of microeconomic investment lumpiness for the business cycle.

Keywords: sticky information; general equilibrium; lumpy investment; business cy- cle (search for similar items in EconPapers)
JEL-codes: D83 E10 E22 E32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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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 (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:55

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