Corpus ID: 33969715

NBER WORKING PAPER SERIES LUMPY INVESTMENT IN DYNAMIC GENERAL EQUILIBRIUM

@inproceedings{Bachmann2006NBERWP,
  title={NBER WORKING PAPER SERIES LUMPY INVESTMENT IN DYNAMIC GENERAL EQUILIBRIUM},
  author={Ruediger Bachmann and Ricardo J. Caballero and E. Engel},
  year={2006}
}
Microeconomic lumpiness matters for macroeconomics. According to our DSGE model, it explains roughly 60% of the smoothing in the investment response to aggregate shocks. The remaining 40% is explained by general equilibrium forces. The central role played by micro frictions for aggregate dynamics results in important history dependence in business cycles. In particular, booms feed into themselves. The longer an expansion, the larger the response of investment to an additional positive shock… Expand

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