Lumpy investment in sticky information general equilibrium
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.
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| Author: | Fabio Verona |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-268682 |
| Series (Serial Number) | Working Paper Series : Institute for Monetary and Financial Stability (55) |
| Document Type: | Working Paper |
| Language: | English |
| Year of first Publication: | 2012 |
| Publishing Institution: | Univ.-Bibliothek Frankfurt am Main |
| Tag: | business cycle; general equilibrium; lumpy investment; sticky information |
| Institutes: | Institute for Monetary and Financial Stability |
| Dewey Decimal Classification: | 330 Wirtschaft |
| JEL-Classification: | D83 Search; Learning; Information and Knowledge; Communication; Belief |
| E10 General | |
| E22 Capital; Investment; Capacity | |
| E32 Business Fluctuations; Cycles | |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Veröffentlichungsvertrag für Publikationen ohne Print on Demand |
