Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

10

Publisher

Utah State University Department of Economics

Publication Date

2005

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

36

Abstract

This paper proposes a method to analyze endogenous fluctuations of aggregate investment when firm-level investment follows an (S,s) policy and has a spillover effect on other firms' investments. First, we derive the distribution function of aggregate fluctuations in a partial equilibrium of differentiated product markets, under the assumption that a firm's position in its (S,s) band follows a uniform distribution. Second, the variance of the growth rate of average capital is shown to converge to a non-zero value when the number of firms tends to infinity, if the technology exhibits constant returns to scale. Third, we numerically compute the equilibrium paths in which the firms' positions evolve deterministically. The simulations uphold our analytical results as well as exhibit echo effects in the output series. Finally, a case of general equilibrium with imperfect information is presented in which the analytical results continue to hold.

Download

Share

COinS