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  4. March 2002
  5. Plant-Level Irreversible Investment and Equilibrium Business Cycles

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Plant-Level Irreversible Investment and Equilibrium Business Cycles

  • Marcelo L. Veracierto
American Economic Review
vol. 92, no. 1, March 2002
(pp. 181–197)
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Abstract

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 realbusiness-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. (JEL E22, E32)

Citation

Veracierto, Marcelo, L. 2002. "Plant-Level Irreversible Investment and Equilibrium Business Cycles ." American Economic Review, 92 (1): 181–197. DOI: 10.1257/000282802760015667

JEL Classification

  • E22 Capital; Investment; Capacity
  • E32 Business Fluctuations; Cycles
  • G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity