Aggregate Fluctuations of Discrete Investments
نویسنده
چکیده
This paper demonstrates endogenous fluctuations of aggregate investments when firm-level investments follow an (S,s) policy and exhibits demand externality. We present a method to characterize the aggregate fluctuations that arise from the interaction of the (S,s) policies. We show that the growth rate of capital has a strictly positive variance even when the number of firms tends to infinity if the production exhibits constant returns to scale and the real wage and interest rate are fixed. A closed-form distribution function of the growth rate is derived for a general environment. Numerical simulations of the equilibrium path confirm the analytical results. We report some data on aggregate distributions that are consistent with the model. JEL classification code: E22, E32 Keyword: Lumpy investment, (S,s) economy, self-organized criticality, heavy-tailed distribution
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