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Creator: Christiano, Lawrence J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 339 Palabra clave: Fluctuations, Investment, Inventory investments, and Inventory Tema: G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity and E32 - Business Fluctuations; Cycles
Creator: Bryant, John B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 099 Abstract:
This paper presents a monetarist model of the business cycle with price-setting firms. The model is estimated, and the point estimates used in simulations to illustrate the properties of the model. The real goods market is found to be stable, although subject to sharp changes in output. This model is consistent with rational expectations. Nevertheless, monetary policy can have a lasting impact, and the simulations show this to be the case. Fiscal policy too is found to influence the business cycle, but its short-run effects are substantially smaller than its impact effects. The possibility of an activist government policy in this model does not imply the efficiency of an activist policy.
Palabra clave: Real goods market, Inventory cycle, Rational expectations, and Disequilibrium Tema: G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Creator: Thomas, Julia Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 302 Abstract:
Previous research has suggested that discrete and occasional plant-level capital adjustments have significant aggregate implications. In particular, it has been argued that changes in plants’ willingness to invest in response to aggregate shocks can at times generate large movements in total investment demand. In this study, I re-assess these predictions in a general equilibrium environment. Specifically, assuming nonconvex costs of capital adjustment, I derive generalized (S,s) adjustment rules yielding lumpy plant-level investment within an otherwise standard equilibrium business cycle model. In contrast to previous partial equilibrium analyses, model results reveal that the aggregate effects of lumpy investment are negligible. In general equilibrium, households’ preference for relatively smooth consumption profiles offsets changes in aggregate investment demand implied by the introduction of lumpy plant-level investment. As a result, adjustments in wages and interest rates yield quantity dynamics that are virtually indistinguishable from the standard model.
Palabra clave: Business Cycles, Lumpy Investment, and (S,s) Adjustment Tema: E32 - Business Fluctuations; Cycles and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 108 Palabra clave: One-sector growth model, Tobin, Demand schedule, Stochastic growth model, and Q theory Tema: O41 - One, Two, and Multisector Growth Models and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: McGrattan, Ellen R. and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 369 Abstract:
For the 1990s, the basic neoclassical growth model predicts a depressed economy, when in fact the U.S. economy boomed. We extend the base model by introducing intangible investment and non-neutral technology change with respect to producing intangible investment goods and find that the 1990s are not puzzling in light of this new theory. There is micro and macro evidence motivating our extension, and the theory’s predictions are in conformity with U.S. national accounts and capital gains. We compare accounting measures with corresponding measures for our model economy. We find that standard accounting measures greatly understate the 1990s boom.
Palabra clave: Intangible Investment, Hours, and Productivity Tema: O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, E23 - Macroeconomics: Production, O33 - Technological Change: Choices and Consequences; Diffusion Processes, and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Khan, Aubhik and Thomas, Julia Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 352 Abstract:
We solve equilibrium models of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity. Nonconvex adjustment costs lead plants to pursue generalized (S, s) rules with respect to capital; thus, their investments are lumpy. In partial equilibrium, this yields substantial skewness and kurtosis in aggregate investment, though, with differences in plant-level productivity, these nonlinearities are far less pronounced. Moreover, nonconvex costs, like quadratic adjustment costs, increase the persistence of aggregate investment, yielding a better match with the data. In general equilibrium, aggregate nonlinearities disappear, and investment rates are very persistent, regardless of adjustment costs. While the aggregate implications of lumpy investment change substantially in equilibrium, the inclusion of fixed costs or idiosyncratic shocks makes the average distribution of plant investment rates largely invariant to market-clearing movements in real wages and interest rates. Nonetheless, we find that understanding the dynamics of plant-level investment requires general equilibrium analysis.
Palabra clave: Establishment investment, (S,s), Lumpy investment, Nonlinearities, and Policies Tema: E32 - Business Fluctuations; Cycles and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Khan, Aubhik and Thomas, Julia Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 306 Abstract:
Recent empirical analysis has found nonlinearities to be important in understanding aggregated investment. Using an equilibrium business cycle model, we search for aggregate nonlinearities arising from the introduction of nonconvex capital adjustment costs. We find that, while such costs lead to nontrivial nonlinearities in aggregate investment demand, equilibrium investment is effectively unchanged. Our finding, based on a model in which aggregate fluctuations arise through exogenous changes in total factor productivity, is robust to the introduction of shocks to the relative price of investment goods.
Palabra clave: Adjustment costs, Lumpy investment, Nonlinearities, and Business cycles Tema: E32 - Business Fluctuations; Cycles and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Khan, Aubhik and Thomas, Julia Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 329 Abstract:
We develop an equilibrium business cycle model where producers of final goods pursue generalized (S,s) inventory policies with respect to intermediate goods due to nonconvex factor adjustment costs. When calibrated to reproduce the average inventory-to-sales ratio in postwar U.S. data, our model explains over half of the cyclical variability of inventory investment. Moreover, inventory accumulation is strongly procyclical, and production is more volatile than sales, as in the data.
The comovement between inventory investment and final sales is often interpreted as evidence that inventories amplify aggregate fluctuations. In contrast, our model economy exhibits a business cycle similar to that of a comparable benchmark without inventories, though we do observe somewhat higher variability in employment, and lower variability in consumption and investment. Thus, our equilibrium analysis reveals that the presence of inventories does not substantially raise the cyclical variability of production, because it dampens movements in final sales.
Palabra clave: (S,s) inventories and Business cycles Tema: E32 - Business Fluctuations; Cycles and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Arellano, Cristina, Bai, Yan, and Zhang, Jing Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 392 Abstract:
This paper studies the impact of cross-country variation in financial market development on firms’ financing choices and growth rates using comprehensive firm-level datasets. We document that in less financially developed economies, small firms grow faster and have lower debt to asset ratios than large firms. We then develop a quantitative model where financial frictions drive firm growth and debt financing through the availability of credit and default risk. We parameterize the model to the firms’ financial structure in the data and show that financial restrictions can account for the majority of the difference in growth rates between firms of different sizes across countries.
Palabra clave: Default risk, Cross-country firm level dataset, and Firm investment and growth Tema: F20 - International Factor Movements and International Business: General and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Bhandari, Anmol and McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 560 Abstract:
We develop a theory of sweat equity—which is the value of business owners’ time and expenses to build customer bases, client lists, and other intangible assets. We discipline the theory using data from U.S. national accounts and business census data and estimate a ratio of intangible to total assets in private business that is close to 60 percent, in line with evidence from broker data on business sales. We use our theory to evaluate the impact of lower private business and corporate tax rates and find much larger effects on private business than studies that ignore the fact that owners accumulate sweat capital. We also find large differences between our model’s distributional predictions and those of earlier studies.
Palabra clave: Business valuation and Intangibles Tema: H25 - Business Taxes and Subsidies including sales and value-added (VAT), E13 - General Aggregative Models: Neoclassical, and E22 - Investment; Capital; Intangible Capital; Capacity