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
Citation
1
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/jmcb.12319