Nonconvex factor adjustments in equilibrium business cycle models: Do nonlinearities matter?

By Aubhik Khan, Julia K. Thomas. 2003

173 citations recorded by the source corpus.

Recent empirical analysis has found nonlinearities to be important in understanding aggregated investment. Using an equilibrium business cycle model, we search for aggregate nonlinearities arising from the introduction of nonconvex capital adjustment costs. We find that, while such costs lead to nontrivial nonlinearities in aggregate investment demand, equilibrium investment is effectively unchanged. Our finding, based on a model in which aggregate fluctuations arise through exogenous changes in total factor productivity, is robust to the introduction of shocks to the relative price of investment goods.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d88324d4e490ea9f6b42872557cd20407665d928

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In Economics and Econometrics

Citations in the corpus

Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity (2011, methodology): “Firms with b > bT (k; ") do not solve (26); for them, V c (k; b; "; z; ) = V d (k; b; "; z; ).”
Entry, Exit, Firm Dynamics, and Aggregate Fluctuations (2016, unknown): “See for example the business cycle theories of Veracierto (2002), Khan and Thomas (2003, 2008) and Bachman and Bayer (2009a,b), as well as the asset pricing model by Zhang (2005).”
Inventories and the Business Cycle: An Equilibrium Analysis of (S,S) Policies (2004, unknown): “S ρF (s; z,A)λF (ds) (21) A0 = Γ (z,A) (22) Let C (λI , λF ; z,A) summarize their choice of current consumption, N (λI , λF ; z,A) their allocation of time to work, ΛI (λI , λF ; z,A) their purchases of shares in the representative intermediate goods firm, and ΛF (s, λI , λF ; z,A) the quantity of s”
The Impact of Uncertainty Shocks (2007, background): “…gg re ga te O ut pu t (d etr en de d & n or m al iz ed to 1 o n pr e- sh oc k da te ) Month Month moments in a representative consumer framework to compute a recursive competitive equilibrium (see, for example, Krusell and Smith, 1998, Khan and Thomas, 2003, and Bachman, Caballero and Engel, 2006).”
Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model (2013, unknown): “Caballero, Engel, and Haltiwanger (1995) and Caballero and Engel (1999) used skewness and kurtosis of the aggregate investment rate to capture nonlinear behavior, as did Thomas (2002) and Khan and Thomas (2003, 2008).”