Lumpiness, capital adjustment costs and investment dynamics

Fiori, Giuseppe

doi:10.1016/j.jmoneco.2012.03.005

Cited by 29 publications

(24 citation statements)

References 36 publications

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“…Notice the contrast to the mechanism in Fiori (), where the aggregate relevance of lumpy investment is generated entirely by movements of a relative price in a two‐sector environment, namely, the relative price of investment. Here, the relevant relative price, that is, of intermediate goods, strengthens but does not drive our result.…”

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confidence: 89%

“…A paper related to ours is Fiori (), which also features lumpy capital adjustment in a two‐sector model, though without inventories, so the focus there is on movements of the relative price of investment, which in our setup is constant by assumption. Another related paper is Berger and Vavra (), which features lumpy adjustment in durable goods in the presence of fixed capital.…”

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confidence: 99%

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Lumpy Investment, Lumpy Inventories

Bachmann

2016

J of Money Credit Banking

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The link between the microenvironment (frictions and heterogeneity) and the macroeconomic dynamics of general equilibrium macromodels is influenced by exactly how general equilibrium closes the model. We make this observation concrete using the recent literature on how nonconvex capital adjustment costs influence aggregate investment dynamics. We introduce inventories into a two‐sector lumpy investment model and find that nonconvex capital adjustment costs dampen and propagate investment impulse responses, more so than without inventories. With two means of transferring consumption into the future, fixed capital and inventories, the tight link between aggregate saving and fixed capital investment is broken.

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confidence: 89%

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confidence: 99%

Lumpy Investment, Lumpy Inventories

Bachmann

2016

J of Money Credit Banking

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“…Following the literature (e.g., Khan and Thomas 2003, 2008, Fiori 2012, we assume the uniform distribution for the fixed cost with the support [0, ξ max ] . We calibrate the parameter ξ max to match the steady-state inaction rate (1 −ξ/ξ max ) of 0.081 reported by Cooper and Haltiwanger (2006).…”

Section: Baseline Parameterizationmentioning

confidence: 99%

“…in period 1 and agents have perfect foresight about future tax rates. Following the public finance literature (e.g., Judd 1985, 1987, Mertens and Ravn 2011, 2012, we say that a tax policy is unanticipated (anticipated) when it is actually implemented at the same time of the announcement date (in a future date).…”

Section: Baseline Parameterizationmentioning

confidence: 99%

Lumpy Investment and Corporate Tax Policy

Miao

Wang

2014

J of Money Credit Banking

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This paper studies the impact of corporate tax policy on the economy in the presence of both convex and nonconvex capital adjustment costs in a dynamic general equilibrium model. We show that corporate tax policy generates both intensive and extensive margin effects via the channel of marginal Q. Its impact is determined largely by the strength of the extensive margin effect, which in turn depends on the cross-sectional distribution of firms. Depending on the initial distribution of firms, the economy displays asymmetric responses to tax changes. We also show that an anticipated decrease in the future corporate income tax rate raises investment and adjustment rate immediately, while an anticipated increase in the future investment tax credit reduces investment and adjustment rate initially. Our general equilibrium analysis demonstrates that a partial equilibrium analysis of tax policy can be quite misleading both quantitatively and qualitatively.JEL Classification: E22, E62, H32

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“…Currently, there are a number of other studies that support either the relevance or the irrelevance result. 2 Papers supporting the relevance result include Bayer (2006), Sveen and Weinke (2007), Iacoviello and Pavan (2007), Bachmann et al (2010) and Fiori (2011). Thomas (2003, 2008) and House (2008) in turn provide additional evidence in favour of the irrelevance result.…”

Section: Introductionmentioning

confidence: 99%

Lumpy Investment in Sticky Information General Equilibrium

Verona

2013

SSRN Journal

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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 nd that the model with lumpy investment yields business cycle dynamics which dier 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 cycle JEL classication: D83, E10, E22, E32 * This paper is based on a chapter of my PhD dissertation. Part of this paper was written during my traineeship at the ECB's Monetary Policy Strategy Division, whose hospitality I gratefully acknowledge.The rst version of this paper was circulated as CEF.U P Working Paper No 2011-02. I am extremely grateful to Ricardo Reis for his invaluable guidance, to Manuel M. F. Martins for his extensive and critical comments on an earlier draft of this paper which have considerably improved its content and readability, and to Roberta Cardani, Alper Çenesiz, Vasco Gabriel, Basile Grassi, Riccardo Masolo, Alessio Moro, Marcelo Sanchez, Mathias Trabandt, and conference and seminar participants for comments and suggestions. I would also like to thank Professor Ruediger Bachmann for providing the data on quarterly investment rates, Assia Ezzeroug and Maik Wolters for their discussions on the implementation of sticky information models in Dynare. The Fundação para a Ciência e a Tecnologia, the IM F S and the CEF.U P provided nancial support. Any errors are my own.

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Lumpiness, capital adjustment costs and investment dynamics

Cited by 29 publications

References 36 publications

Lumpy Investment, Lumpy Inventories

Lumpy Investment, Lumpy Inventories

Lumpy Investment and Corporate Tax Policy

Lumpy Investment in Sticky Information General Equilibrium

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