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Investment and firm dynamics

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  • D'Erasmo, Pablo

Abstract

In this paper I ask whether a model of ¯rm capital accumulation with entry and exit calibrated to match the investment regularities of U.S. establishments is capable of generating the dependence of ¯rm dynamics on size and age. Firms face uncertainty in the form of idiosyncratic productivity shocks and are subject to non-convex capital adjustment costs. I solve for the stationary equilibrium to show that the model can account for the simultaneous dependence of industry dynamics on size (once we condition on age) and on age (once we condition on size).

Suggested Citation

  • D'Erasmo, Pablo, 2006. "Investment and firm dynamics," MPRA Paper 3598, University Library of Munich, Germany, revised Apr 2007.
    • Handle: RePEc:pra:mprapa:3598
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    File URL: https://mpra.ub.uni-muenchen.de/4032/1/MPRA_paper_4032.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    firm dynamics; investment; financial constraints;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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