Irreversibility and Aggregate Investment.
Investment is often irreversible: once installed, capital has little or no value unless used in production. This paper proposes and solves a model of sequential irreversible investment and characterizes the aggregate implications of macroeconomic irreversibility and idiosyncratic uncertainty. If a large amount of idiosyncratic uncertainty is allowed for, the distributional dynamics induced by the nonlinear character of irreversible investment policies are capable of smoothing the dynamics of aggregate investment (relative to those of its forcing processes) to the extent required by U.S. data. Copyright 1994 by The Review of Economic Studies Limited.
Year of publication: |
1994
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Authors: | Bertola, Guiseppe ; Caballero, Ricardo J |
Published in: |
Review of Economic Studies. - Wiley Blackwell, ISSN 0034-6527. - Vol. 61.1994, 2, p. 223-46
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Publisher: |
Wiley Blackwell |
Saved in:
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