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Aggregate dynamics in lumpy economies

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In economies with lumpy microeconomic adjustment, we establish structural relationships between the dynamics of the cross-sectional distribution of agents and its steady-state counterpart and discipline these relationships using micro data. Applying our methodology to firm lumpy investment, we discover that the dynamics of aggregate capital are structurally linked to two cross-sectional moments of the capital-to-productivity ratio: its dispersion and its covariance with the time elapsed since the last adjustment. We compute these sufficient statistics using plant–level data on the size and frequency of investments. We find that, in order to explain investment dynamics, the benchmark model with fixed adjustment costs must also feature a precise combination of irreversibility and random opportunities of free adjustment.

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  • Isaac Baley & Andrés Blanco, 2019. "Aggregate dynamics in lumpy economies," Economics Working Papers 1670, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1670
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    Cited by:

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    5. Hong, Gee Hee & Klepacz, Matthew & Pasten, Ernesto & Schoenle, Raphael, 2023. "The real effects of monetary shocks: Evidence from micro pricing moments," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 1-20.
    6. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.
    7. Lee, Hanbaek, 2022. "Striking While the Iron Is Cold: Fragility after a Surge of Lumpy Investments," MPRA Paper 115872, University Library of Munich, Germany.
    8. Lippi, Francesco & Alvarez, Fernando & Ferrara, Andrea & Gautier, Erwan & Le Bihan, Hervé, 2021. "Empirical Investigation of a Sufficient Statistic for Monetary Shocks," CEPR Discussion Papers 16626, C.E.P.R. Discussion Papers.
    9. Fernando Alvarez & Francesco Lippi & Aleksei Oskolkov, 2022. "The Macroeconomics of Sticky Prices with Generalized Hazard Functions [“Optimal Inattention to the Stock Market With Information Costs and Transactions Costs,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(2), pages 989-1038.
    10. Leonard Bocquet, 2022. "The Network Origin of Slow Labor Reallocation," PSE Working Papers halshs-03703862, HAL.
    11. Klaus Adam & Andrey Alexandrov & Henning Weber, 2023. "Inflation Distorts Relative Prices: Theory and Evidence," CRC TR 224 Discussion Paper Series crctr224_2023_406v2, University of Bonn and University of Mannheim, Germany, revised May 2024.
    12. Leonard Bocquet, 2022. "The Network Origin of Slow Labor Reallocation," Working Papers halshs-03703862, HAL.
    13. Bocquet, L., 2024. "The Network Origin of Slow Labor Reallocation," Janeway Institute Working Papers 2427, Faculty of Economics, University of Cambridge.
    14. Bocquet, L., 2024. "The Network Origin of Slow Labor Reallocation," Cambridge Working Papers in Economics 2465, Faculty of Economics, University of Cambridge.
    15. Hassan Afrouzi & Saroj Bhattarai, 2023. "Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach," CESifo Working Paper Series 10416, CESifo.
    16. Fernando Alvarez & Francesco Lippi & Panagiotis Souganidis, 2024. "Caballero–Engel meet Lasry–Lions: A uniqueness result," Mathematics and Financial Economics, Springer, volume 18, number 13, December.
    17. Zhao Chen & Xian Jiang & Zhikuo Liu & Juan Carlos Suárez Serrato & Daniel Yi Xu, 2023. "Tax Policy and Lumpy Investment Behaviour: Evidence from China’s VAT Reform," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(2), pages 634-674.
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    19. Luo, Shaowen & Villar, Daniel, 2021. "The price adjustment hazard function: Evidence from high inflation periods," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    inaction; lumpiness; transitional dynamics; non convex adjustment costs; sufficient statistics; firm investment; adjustment hazard; Ss models.;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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