Aggregate Fluctuations of Discrete Investments

This paper demonstrates endogenous fluctuations of aggregate investments when firm-level investments follow an (S,s) policy and exhibit strategic complementarity. We present a method to characterize the aggregate fluctuations that arise from the interaction of the (S,s) policies. A closed-form distribution function of the output growth rate is derived in general environments. We show that the growth rate has a strictly positive variance even when the number of firms tends to infinity if the production exhibits constant returns to scale and the real wage and interest rate are fixed.