Norges Bank

Working Paper

Lumpy investment and state-dependent pricing in general equilibrium

Author:
by Michael Reiter, Tommy Sveen and Lutz Weinke
Series:
Working Paper
Number:
5/2009

Abstract:

The lumpy nature of plant-level investment is generally not taken into account in the context of monetary theory (see, e.g., Christiano et al. 2005 and Woodford 2005). We formulate a generalized (S,s) pricing and investment model which is empirically more plausible along that dimension. Surprisingly, our main result shows that the presence of lumpy investment casts doubt on the ability of sticky prices to imply a quantitatively relevant monetary transmission mechanism.

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ISSN 1502-8190 (online)

Published 7 April 2009 12:51
Published 7 April 2009 12:51