Lumpy investment, sectoral propagation, and business cycles

Makoto Nirei

doi:10.1117/12.609339

23 May 2005 Lumpy investment, sectoral propagation, and business cycles (Invited Paper)

Makoto Nirei

Proceedings Volume 5848, Noise and Fluctuations in Econophysics and Finance; (2005) https://doi.org/10.1117/12.609339
Event: SPIE Third International Symposium on Fluctuations and Noise, 2005, Austin, Texas, United States

Abstract

This paper proposes a model of endogenous fluctuations in investment. A monopolistic producer has an incentive to invest when the aggregate demand is high. The investment at the firm level is also known to exhibit a threshold behavior called an (S,s) policy. These two facts lead us to consider that the fluctuation in aggregate investment is generated by the global coupling of the non-linear oscillators. From this perspective, we characterize the probability distribution of the investment clustering in a partial equilibrium of product markets, and show that its variance can be large enough to match the observed investment fluctuations. We then implement this mechanism in a dynamic general equilibrium model to explore an investment-driven business cycle. By calibrating the model with the SIC 4-digit level industry data, we numerically show that the model replicates the basic structure of the business cycles.

Citation Download Citation

Makoto Nirei "Lumpy investment, sectoral propagation, and business cycles (Invited Paper)", Proc. SPIE 5848, Noise and Fluctuations in Econophysics and Finance, (23 May 2005); https://doi.org/10.1117/12.609339

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