An Equilibrium Model of Irreversible Investment
نویسنده
چکیده
This paper presents a general equilibrium model of a two-sector production economy with irreversible real investment. Irreversibility of investment is the most prominent feature of the productive sector. It restricts capital accumulation, affecting firms’ investment decisions, which in turn determine properties of asset prices. Thus, this model provides a framework for connecting stock returns to firm characteristics that proxy for real economic activity. The primary focus of this paper is on the analysis of the equilibrium and the effects of irreversibility on investment. JEL classification: G1, D5, E2, C0
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