Working Paper: NBER ID: w12336
Authors: Ruediger Bachmann; Ricardo J. Caballero; Eduardo M. Engel
Abstract: The sensitivity of U.S. aggregate investment to shocks is procyclical: the initial response increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond explaining this specific time variation, our model and evidence provide a counterexample to the claim that microeconomic investment lumpiness is inconsequential for macroeconomic analysis.
Keywords: Lumpy Investment; Dynamic General Equilibrium; Macroeconomic Analysis
JEL Codes: E10; E22; E30; E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Productivity shocks (O49) | U.S. aggregate investment rates (E22) |
| History of shocks (B26) | Initial response of U.S. aggregate investment to shocks is procyclical (E22) |
| Initial response of U.S. aggregate investment to shocks is procyclical (E22) | U.S. aggregate investment rates (E22) |
| Lumpy investment model (G11) | Nonlinear dynamics in aggregate investment rates (E22) |
| Adjustment costs and general equilibrium forces (D59) | Aggregate investment dynamics (E22) |
| Historical context of shocks (N13) | Responsiveness of aggregate investment (E22) |