Title

Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model

Document Type

Discussion Paper

Publication Date

6-1-2006

CFDP Number

1566R

CFDP Update Date

2010-04-01

CFDP Pages

48

Abstract

The sensitivity of U.S. aggregate investment to shocks is procyclical: the response upon impact 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.

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