Plant level irreversible investment and equilibrium business cycles

By Marcelo Veracierto. 2002

198 citations recorded by the source corpus.

This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a general equilibrium approach. To this end a real business cycle model of establishment level dynamics is formulated and analyzed. Investments decisions are subject to irreversibility constraints and consequently, are of the (S,s) variety. This complicates the analysis since the state of the economy is described by an endogenous distribution of agents. The paper develops a computational strategy that makes this class of (S,s) economies fully tractable. Contrary to what the previous literature has suggested, investment irreversibilities are found to have no effects on aggregate business cycle dynamics.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/fca7a91bc9433745c844e96f383efe6a9d9d7a13

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In Economics and Econometrics

Citations in the corpus

When Inequality Matters for Macro and Macro Matters for Inequality (2018, unknown): “Our method builds on the ideas of Dotsey, King and Wolman (1999), Campbell (1998), Veracierto (2002), and Reiter (2009), and is related to Preston and Roca (2007).”
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).”
The Market Price of Aggregate Risk and the Wealth Distribution (2005, unknown): “1 Verarcierto (1998) also uses truncated aggregate histories to approximate equilibria in a different environment.”
Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity (2011, unknown): “Calibrating the model to aggregate and microeconomic data, we use it as a laboratory in which to examine the question raised above.”