TY  - JOUR
AU  - Bachmann,Rüdiger
AU  - Bayer,Christian
TI  - Investment Dispersion and the Business Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16861
PY  - 2011
Y2  - March 2011
UR  - http://www.nber.org/papers/w16861
L1  - http://www.nber.org/papers/w16861.pdf
N1  - Author contact info:
Ruediger Bachmann
Department of Economics
RWTH Aachen University
Templergraben 64
Aachen
Germany
Tel: +49 (241) 80-96203
E-Mail: ruediger-bachmann@gmx.de

Christian Bayer
Universität Bonn
Department of Economics
Adenauerallee 24-42
53113 Bonn
Germany
Tel: +49-228-73 4073
E-Mail: christian.bayer@uni-bonn.de
AB  - We document a new business cycle fact: the cross-sectional standard deviation of firm-level investment (investment dispersion) is robustly and significantly procyclical. This makes investment dispersion different from the dispersion of productivity and output growth, which is countercyclical. Investment dispersion is more procyclical in the goods-producing sectors, for smaller firms and for structures. We show that a heterogeneous-firm real business cycle model with countercyclical idiosyncratic firm risk and non-convex adjustment costs calibrated to match moments of the long-run investment rate distribution, produces a time series correlation coefficient between investment dispersion and aggregate output of 0.58, close to the 0.45 in the data. We argue, more generally, that cross-sectional business cycle dynamics impose tight empirical restrictions on the physical environments and the structural parameters of heterogeneous-firm models.
ER  -