Is Lumpy Investment Relevant for the Business Cycle?

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Abstract
This paper examines the importance of establishment-level discrete and occasional capital adjustments for aggregate business cycle dynamics. Generalized (S,s) investment rules arise through nonconvex costs of capital adjustment within an otherwise standard equilibrium business cycle model, and the model is calibrated using data on establishment-level investment patterns. The effects of lumpy investment are shown to be secondary to the convexifying force of general equilibrium. Specifically, adjustments in wages and interest rates yield quantity dynamics that are virtually indistinguishable from the standard model.
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