Premium
Lumpy Investment, Lumpy Inventories
Author(s) -
BACHMANN RÜDIGER,
MA LIN
Publication year - 2016
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12319
Subject(s) - investment (military) , economics , fixed investment , capital (architecture) , aggregate (composite) , impulse response , general equilibrium theory , microeconomics , fixed capital , capital accumulation , monetary economics , capital formation , econometrics , financial capital , mathematics , geography , profit (economics) , mathematical analysis , materials science , archaeology , politics , political science , law , composite material
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.