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Abstract
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This paper demonstrates that the interactions of rm-level indivisible investments give rise to aggregate
uctuations without aggregate exogenous shocks.
I develop a method to derive the distribution of the aggregate capital growth rate by embedding a ctitious tatonnement in a branching process. This method shows that idiosyncratic shocks may lead to non-vanishing aggregate
uctuations when the number of rms tends to in nity. By incorporating this mechanism in a dynamic general equilibrium model with indivisible
investment and sticky price, I provide the real business cycle theory with a driver of
uctuations: aggregate investment demand shocks that arise from idiosyncratic productivity shocks. Due to predetermined prices of goods, firms respond to investment shocks by adjusting labor and output, thereby causing the comovements of output and consumption with investment. Numerical simulations show that the model generates aggregate
uctuations comparable to the business cycles in magnitude and correlation structure under standard calibration.
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