Corporate Investment Over the Business Cycle
نویسندگان
چکیده
While firm-level capital growth rates exhibit positive spikes, and rise as fast as they fall, the average capital growth rate across firms exhibits negative spikes, and declines faster than it recovers. We develop a dynamic model of investment that reconciles these empirical patterns. The model features costly reversibility, cyclical macroeconomic shocks, and uncertainty about the state of the economy. A firm’s optimal capacity is more sensitive to bad signals in good times than to good signals in bad times. The endogenous distribution of firms relative to their optimal capacities leads to sharp decline and slow recovery at the aggregate level. JEL codes: G31, G30
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