National University of Singapore
Institutional Affiliation: National University of Singapore
Information about this author at RePEc
NBER Working Papers and Publications
|March 2012||Lumpy 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