Lumpy Investment, Lumpy Inventories

Bachmann, Ruediger; Ma, Lin

doi:10.1111/jmcb.12319

Cited by 9 publications

(5 citation statements)

References 40 publications

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“…That is, with multiple sources of savings, large changes in the behavior of some component of savings do not necessarily imply that households must violate consumption smoothing. This is similar to the intuition in Bachmann and Ma [2013] who argue that the presence of inventories in a model with lumpy investment reduces the importance of general equilibrium effects.…”

Section: Robustness To General Equilibriumsupporting

confidence: 85%

Consumption Dynamics During Recessions

Berger¹,

Vavra

2014

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Are there times when durable spending is less responsive to economic stimulus? We argue that aggregate durable expenditures respond more sluggishly to economic shocks during recessions because microeconomic frictions lead to declines in the frequency of households' durable adjustment. We show this by first using indirect inference to estimate a heterogeneous agent incomplete markets model with fixed costs of durable adjustment to match consumption dynamics in PSID microdata. We then show that aggregating this model delivers an extremely procyclical Impulse Response Function (IRF) of durable spending to aggregate shocks. For example, the response of durable spending to an income shock in 1999 is estimated to be almost twice as large as if it occurred in 2009. This procyclical IRF holds in response to standard business cycle shocks as well as in response to various policy shocks, and it is robust to general equilibrium. After estimating this robust theoretical implication of micro frictions, we provide additional direct empirical evidence for its importance using both cross-sectional patterns in PSID data as well as time-series patterns from aggregate durable spending.

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Section: Robustness To General Equilibriumsupporting

confidence: 85%

Consumption Dynamics During Recessions

Berger¹,

Vavra

2014

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“…That is, with multiple sources of savings, large changes in the behavior of some component of savings do not necessarily imply that households must violate consumption smoothing. This is similar to the intuition in Bachmann and Ma (2013), who argued that the presence of inventories in a model with lumpy investment reduces the importance of general equilibrium effects.…”

Section: Robustness To General Equilibriumsupporting

confidence: 85%

Consumption Dynamics During Recessions

Berger

Vavra

2015

Econometrica

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Are there times when durable spending is less responsive to economic stimulus? We argue that aggregate durable expenditures respond more sluggishly to economic shocks during recessions because microeconomic frictions lead to declines in the frequency of households' durable adjustment. We show this by first using indirect inference to estimate a heterogeneous agent incomplete markets model with fixed costs of durable adjustment to match consumption dynamics in PSID microdata. We then show that aggregating this model delivers an extremely procyclical Impulse Response Function (IRF) of durable spending to aggregate shocks. For example, the response of durable spending to an income shock in 1999 is estimated to be almost twice as large as if it occurred in 2009. This procyclical IRF holds in response to standard business cycle shocks as well as in response to various policy shocks, and it is robust to general equilibrium. After estimating this robust theoretical implication of micro frictions, we provide additional direct empirical evidence for its importance using both cross-sectional and time-series data. , and numerous seminar and conference participants. We would like to thank David Argente for excellent research assistance.2 See Appendix A for a detailed description of the data construction for this and subsequent figures. Broad durables include both housing and vehicles, while housing includes only housing adjustment. Frequencies are annual.

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“…See, among others, Gourio and Kashyap (), Bloom et al. (), Khan and Thomas (), Bachmann and Bayer (), Bachmann and Ma (), Bachmann, Caballero, and Engel (), with earlier work in Khan and Thomas () and Thomas (). A complementary literature in heterogeneous agent state‐dependent pricing models, typically dependent on the KS algorithm for solutions, includes papers by Vavra (), Klenow and Willis (), Knotek (), Knotek and Terry (), and many others.…”

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confidence: 97%

Alternative Methods for Solving Heterogeneous Firm Models

Terry¹

2017

J of Money Credit Banking

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I implement and compare five solution methods for a benchmark heterogeneous firms model with lumpy capital adjustment and aggregate uncertainty. The Krusell–Smith algorithm performs best within a group of methods using projection in the aggregate states. Another technique, Parameterization plus Perturbation, is much faster and performs best within a group of methods using perturbation in aggregates. However, projection and perturbation have nonoverlapping strengths and weaknesses. I highlight the resulting trade‐offs with several model extensions. I recommend that researchers apply projection methods to cases with large shocks or nonlinear dynamics, while cases with explicitly distributional channels at work favor perturbation.

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Lumpy Investment, Lumpy Inventories

Cited by 9 publications

References 40 publications

Consumption Dynamics During Recessions

Consumption Dynamics During Recessions

Consumption Dynamics During Recessions

Alternative Methods for Solving Heterogeneous Firm Models

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