Plant-Level Irreversible Investment and Equilibrium Business Cycles

Veracierto, M. L.; Veracierto, M. L

doi:10.1257/000282802760015667

Home

>

Section

>

Chapter

Plant-Level Irreversible Investment and Equilibrium Business Cycles

Veracierto, M. L.

American Economic Review 92(1): 181-197

2002

ISSN/ISBN: 0002-8282

DOI: 10.1257/000282802760015667
Accession: 086656596

Full-Text Article emailed within 0-6 h

Payments are secure & encrypted

Summary

This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real-business-cycle (RBC) model characterized by investment irreversibilities at the establishment level. The main finding is that investment irreversibilities do not play a significant role in an otherwise standard real-business-cycle model: Even though investment irreversibilities are crucial for establishment-level dynamics, aggregate fluctuations are basically the same under fully flexible or completely irreversible investment.