Publication Type

Journal Article

Version

acceptedVersion

Publication Date

8-2016

Abstract

The link between the microenvironment (frictions and heterogeneity) and the macroeconomic dynamics of general equilibrium macromodels is influenced by exactly how general equilibrium closes the model. We make this observation concrete using the recent literature on how nonconvex capital adjustment costs influence aggregate investment dynamics. We introduce inventories into a two-sector lumpy investment model and find that nonconvex capital adjustment costs dampen and propagate investment impulse responses, more so than without inventories. With two means of transferring consumption into the future, fixed capital and inventories, the tight link between aggregate saving and fixed capital investment is broken.

Keywords

general equilibrium, lumpy investment, inventories, heterogeneous firms, two-sector model

Discipline

Finance | Industrial Organization

Research Areas

Macroeconomics

Publication

Journal of Money, Credit and Banking

Volume

48

Issue

5

First Page

821

Last Page

855

ISSN

0022-2879

Identifier

10.1111/jmcb.12319

Publisher

Wiley: 24 months

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/jmcb.12319

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