Share Email Print

Proceedings Paper

Lumpy investment, sectoral propagation, and business cycles
Author(s): Makoto Nirei
Format Member Price Non-Member Price
PDF $17.00 $21.00

Paper Abstract

This paper proposes a model of endogenous fluctuations in investment. A monopolistic producer has an incentive to invest when the aggregate demand is high. The investment at the firm level is also known to exhibit a threshold behavior called an (S,s) policy. These two facts lead us to consider that the fluctuation in aggregate investment is generated by the global coupling of the non-linear oscillators. From this perspective, we characterize the probability distribution of the investment clustering in a partial equilibrium of product markets, and show that its variance can be large enough to match the observed investment fluctuations. We then implement this mechanism in a dynamic general equilibrium model to explore an investment-driven business cycle. By calibrating the model with the SIC 4-digit level industry data, we numerically show that the model replicates the basic structure of the business cycles.

Paper Details

Date Published: 23 May 2005
PDF: 15 pages
Proc. SPIE 5848, Noise and Fluctuations in Econophysics and Finance, (23 May 2005); doi: 10.1117/12.609339
Show Author Affiliations
Makoto Nirei, Utah State Univ. (United States)

Published in SPIE Proceedings Vol. 5848:
Noise and Fluctuations in Econophysics and Finance
Derek Abbott; Jean-Philippe Bouchaud; Xavier Gabaix; Joseph L. McCauley, Editor(s)

© SPIE. Terms of Use
Back to Top