We examine a model of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity, and nonconvex adjustment costs lead them to pursue generalized (S,s) investment rules. We allow persistent heterogeneity in both capital and total factor productivity...

Inflation, Employment and Interest Rates in an Economy with Endogenous Market Segmentation Aubhik Khan, Federal Reserve Bank of Philadelphia Julia K. Thomas, University of Minnesota We examine a monetary economy where households incur fixed transactions costs when exchanging bonds and money and,...

We solve the first general equilibrium model of lumpy investment allowing a quantitative match with recent empirical evidence on establishment-level investment dynamics. In our model, establishments are subject to both persistent aggregate and persistent idiosyncratic shocks, and they face...

We consider business cycles driven by exogenous changes in total factor productivity and by credit shocks. The latter are financial shocks that worsen borrowers cash on hand and reduce the fraction of collateral lenders can seize in the event of default. Our nonlinear loan rate schedules drive...

We study the cyclical implications of endogenous firm-level entry and exit decisions in a dynamic, stochastic general equilibrium model wherein firms face persistent shocks to both aggregate and individual productivity. The model we explore is in the spirit of Hopenhayn (1992). Firms' decisions...

We introduce capital accumulation into an economy where individuals have private information with respect to productivity shocks. Efficient, incentive-compatible risk-sharing is achieved by conditioning current and future payoffs on the history of productivity reports. We develop a notion of...

We show that a rise in uncertainty on its own generates a substantial drop in employment, production and investment. In keeping with previous findings in the literature, we find these initial declines are larger in the presence of capital irreversibility than without, as firms experiencing...