Plant-Level Irreversible Investment and Equilibrium Business Cycles
2002 ◽
Vol 92
(1)
◽
pp. 181-197
◽
Keyword(s):
This paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real-business-cycle (RBC) model characterized by investment irreversibilities at the establishment level. The main finding is that investment irreversibilities do not play a significant role in an otherwise standard real-business-cycle model: Even though investment irreversibilities are crucial for establishment-level dynamics, aggregate fluctuations are basically the same under fully flexible or completely irreversible investment.