NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Lin Ma

AS2 #05-19
National University of Singapore
Singapore

E-Mail: ecsml@nus.edu.sg

NBER Working Papers and Publications

March 2012Lumpy Investment, Lumpy Inventories
with Rüdiger Bachmann: w17924
How do microeconomic frictions and microeconomic heterogeneity affect macroeconomic dynamics? We revisit the recent claim in the literature that nonconvex capital adjustment costs do not matter for aggregate dynamics. We argue that the neutrality of fixed adjustment frictions in general equilibrium hinges on the assumption of capital good homogeneity. With only one type of capital good to save and invest in, fixed capital investment dynamics are tightly linked to consumption dynamics, which are similar across lumpy and frictionless investment models. With capital goods heterogeneity, households optimally substitute between different ways of saving, which renders their consumption/saving decisions more sensitive to capital adjustment frictions. We quantify our arguments by introducing inven...

Published: RÜDIGER BACHMANN & LIN MA, 2016. "Lumpy Investment, Lumpy Inventories," Journal of Money, Credit and Banking, vol 48(5), pages 821-855. citation courtesy of

 
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