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Numerical investigation on bottom-up fluctuation of investment

Author

Listed:
  • Yuya Sasaki
  • Makoto Nirei
Abstract
This paper investigates the aggregate fluctuations in production and demand components when a firm's investment decision takes the form of (S,s) policies. In the field of large-dimensional non-linear dynamical systems, it is a commonly accepted view that a system of coupled non-linear oscillators can exhibit sizable aggregate fluctuations in principle even when the coupling is relatively weak. It has been recognized that this mechanism can take effects in a dynamic general equilibrium model in which a firm's investment is lumpy and strategically complement with each other (Nirei, Journal of Economic Theory, forthcoming). In this paper we explore the possibility of such a bottom-up fluctuation which is driven by the endogenous synchronization of firms' lumpy investments. We consider an economy which is disaggregated up to the SIC 4-digit industries (about 500 sectors). We calibrate the magnitude and periodicity of the sectoral fluctuations by using data on the U.S. 4-digit manufacturing sectors. Then we compute the equilibrium paths with various parameters for preference and technology. We observe considerable aggregate fluctuation which is compatible with the U.S. aggregate fluctuations in size for a range of parameters. We quantify the dependence of the magnitude of fluctuations and the autocorrelation of the aggregate series on parameters such as the elasticity of intertemporal substitution and the imperfect competition of the product markets

Suggested Citation

  • Yuya Sasaki & Makoto Nirei, 2005. "Numerical investigation on bottom-up fluctuation of investment," Computing in Economics and Finance 2005 394, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:394
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    More about this item

    Keywords

    lumpy investment; (S; s) policy; strategic complementarity; business cycles;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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