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

Rüdiger Bachmann, Ricardo J. Caballero and Eduardo M. R. A. Engel
American Economic Journal: Macroeconomics
Vol. 5, No. 4 (October 2013), pp. 29-67
Stable URL: http://www.jstor.org/stable/43189561
Page Count: 39
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Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model
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Abstract

The sensitivity of US aggregate investment to shocks is procyclical. The response upon impact increases by approximately 50 percent 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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