In this paper, we propose to explain capital accumulation in a stochastic framework by taking into account the two main motives for investment. Specifically, firms invest to expand capacity and to replace old machines. The model considers irreversible investment under uncertainty and embodied...

We show that credit supply shocks have a strong impact on firm-level as well as aggregate investment by applying the methodology developed by Amiti and Weinstein (2013) to a rich dataset of matched bank-firm loans in the Portuguese economy for the period 2005 to 2013. We argue that their...