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American Economic Review: Vol. 92 No. 1 (March 2002)

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Plant-Level Irreversible Investment and Equilibrium Business Cycles

Article Citation

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

DOI: 10.1257/000282802760015667

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)

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Veracierto, Marcelo L. (Economic Research Department, Federal Reserve Bank of Chicago, 230 South La Salle Street, Chicago, IL 60604, US)


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