Striking While the Iron Is Cold: Fragility after a Surge of Lumpy Investments

Lee, Hanbaek (2022): Striking While the Iron Is Cold: Fragility after a Surge of Lumpy Investments.

Abstract

This paper studies the endogenous state dependence of the aggregate investment dynamics stemming from synchronized lumpy investments at the firm level. I develop a heterogeneous-firm real business cycle model where the semi-elasticities of large and small firms’ investments are matched with the empirical estimates. In the model, following a negative TFP shock, the timings of large firms’ lumpy investments are persistently synchronized due to the low sensitivity to the general equilibrium effect, leading to a surge of lumpy investments. After the surge, TFP-induced recessions are especially severe, and the semi-elasticity of the aggregate investment drops significantly.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business cycle, state dependence, lumpy investment, interest-elasticity.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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