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Category Article
Author Nirei, Makoto
Article Title AN INTERACTION-BASED FOUNDATION OF AGGREGATE INVESTMENT FLUCTUATIONS
Institution Theoretical Economics : journal of the Econometric Society
Volume forthcoming
Number
Page
Date 2014/10/23
Abstract This study demonstrates that the interactions of firm-level indivisible investments give rise to aggregate fluctuations without aggregate exogenous shocks. When investments are indivisible, aggregate capital is determined by the number of firms that invest. I develop a method to derive the closed-form distribution of the number of investing firms when each firm’s initial capital level varies stochastically. This method shows that idiosyncratic shocks may lead to non-vanishing aggregate fluctuations when the number of firms tends to infinity. I incorporate this mechanism in a dynamic general equilibrium model with indivisible investment and predetermined goods prices. The model features no aggregate exogenous shocks, and the fluctuation is driven by idiosyncratic productivity shocks. Numerical simulations show that the model generates aggregate fluctuations comparable to the business cycles in magnitude and correlation structure under standard calibration.
Notes
URL http://hdl.handle.net/10086/26919
Label 経済学
Register date 2015/01/27

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