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Lumpy investment and state-dependent pricing in general equilibrium

Author

Listed:
  • Michael Reiter

    (Institute for Advanced Studies, Vienna)

  • Tommy Sveen

    (Norges Bank (Central Bank of Norway))

  • Lutz Weinke

    (Duke University and Institute for Advanced Studies, Vienna)

Abstract

The lumpy nature of plant-level investment is generally not taken into account in the context of monetary theory (see, e.g., Christiano et al. 2005 and Woodford 2005). We formulate a generalized (S,s) pricing and investment model which is empirically more plausible along that dimension. Surprisingly, our main result shows that the presence of lumpy investment casts doubt on the ability of sticky prices to imply a quantitatively relevant monetary transmission mechanism.

Suggested Citation

  • Michael Reiter & Tommy Sveen & Lutz Weinke, 2009. "Lumpy investment and state-dependent pricing in general equilibrium," Working Paper 2009/05, Norges Bank.
    • Handle: RePEc:bno:worpap:2009_05
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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2009/WP-20095/
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    Cited by:

    1. Michael Reiter, 2009. "Approximate Aggregation in Heterogeneous-Agent Models," 2009 Meeting Papers 733, Society for Economic Dynamics.
    2. Michael K. Johnston, 2009. "Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment," Staff Working Papers 09-36, Bank of Canada.
    3. Rüdiger Bachmann & Lin Ma, 2016. "Lumpy Investment, Lumpy Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(5), pages 821-855, August.
    4. Reiter, Michael, 2010. "Approximate and Almost-Exact Aggregation in Dynamic Stochastic Heterogeneous-Agent Models," Economics Series 258, Institute for Advanced Studies.

    More about this item

    Keywords

    Lumpy Investment; Sticky Prices;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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