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An Empirical Study of Interaction-Based Aggregate Investment Fluctuations

Author

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  • Luigi Guiso

    (Einaudi Institute for Economics and Finance)

  • Chaoqun Lai

    (Utah State University)

  • Makoto Nirei

    (Ministry of Finance and Hitotsubashi University)

Abstract

This paper argues that interactions of firms account for a sizable part of fluctuations in aggregate investments without exogenous aggregate shocks. We first establish empirically that the fraction of firms that engage in a lumpy investment follows a non-normal, two-sided exponential distribution across region-year with a panel data set of Italian firms. We then present a simple sectoral model that generates the two-sided exponential distribution that arises from the complementarity of the firms’ lumpy investments within a region. Calibrated by the firm-level estimate of complementarity, the model is capable of generating the two-sided exponential fluctuations observed at the aggregate level.

Suggested Citation

  • Luigi Guiso & Chaoqun Lai & Makoto Nirei, 2017. "An Empirical Study of Interaction-Based Aggregate Investment Fluctuations," The Japanese Economic Review, Springer, vol. 68(2), pages 137-157, June.
    • Handle: RePEc:spr:jecrev:v:68:y:2017:i:2:d:10.1111_jere.12088
    DOI: 10.1111/jere.12088
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    Cited by:

    1. NIREI Makoto, 2024. "Empirical Estimation of the Propagation of Investment Spikes over the Production Network," Discussion papers 24029, Research Institute of Economy, Trade and Industry (RIETI).
    2. Fernando Alvarez & Francesco Lippi & Roberto Robatto, 2019. "Cost of Inflation in Inventory Theoretical Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 206-226, April.

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    More about this item

    Keywords

    L16; E22;

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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