Working Paper: NBER ID: w13157
Authors: Francois Gourio; Anil K Kashyap
Abstract: Using plant-level data from Chile and the U.S. we show that investment spikes are highly pro-cyclical, so much so that changes in the number of establishments undergoing investment spikes (the "extensive margin") account for the bulk of variation in aggregate investment. The number of establishments undergoing investment spikes also has independent predictive power for aggregate investment, even controlling for past investment and sales. We re-calibrate the Thomas (2002) model (that includes fixed costs of investing) so that it assigns a prominent role to extensive adjustment. The recalibrated model has different properties than the standard RBC model for some shocks.
Keywords: Investment Spikes; General Equilibrium; Business Cycles; Fixed Costs
JEL Codes: E22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed costs of investment (G31) | likelihood of firms adjusting their capital (D25) |
| changes in distribution of fixed costs (D39) | likelihood of firms adjusting their capital (D25) |
| synchronized investment decisions (G11) | impact on aggregate investment dynamics (E22) |
| investment spikes (G31) | aggregate investment (E22) |
| number of establishments undergoing investment spikes (E20) | aggregate investment (E22) |
| number of establishments undergoing investment spikes (E20) | predictive power for future aggregate investment (E22) |