Paper #1897

Títol:

The macroeconomics of irreversibility

Autors:

Isaac Baley i Andres Blanco

Data:

Desembre 2024

Resum:

We study aggregate capital dynamics in an investment model with idiosyncratic productivity shocks, fixed capital adjustment costs, and irreversibility driven by a wedge between capital purchase and resale prices. We derive sufficient statistics capturing the role of investment frictions on aggregate capital fluctuations, measure these statistics with investment microdata, and exploit them to discipline the capital price wedge. Irreversibility doubles the persistence of capital fluctuations and is crucial for reconciling micro-level investment behavior with macroeconomic propagation.

Paraules clau:

investment frictions, capital price wedge, irreversibility, lumpiness, fixed adjustment costs, capital misallocation, Tobin’s q, transitional dynamics, inaction, propagation.

Codis JEL:

D30, D80, E20, E30

Àrea de Recerca:

Macroeconomia i Economia Internacional

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