Arbeitspapier

Identifying aggregate shocks with micro-level heterogeneity: Financial shocks and investment fluctuation

This paper identifies the aggregate financial shocks and quantifies their effects on business investment based on an estimated DSGE model with firm-level heterogeneity. On average, financial shocks contribute only 1.1% of the variation in U.S. public firms' aggregate investment. The negligible aggregate relevance of financial shocks mainly results from the interaction between firm-level heterogeneity and general equilibrium effects. Following a contractionary financial shock, financially constrained firms are directly forced to cut investment, which dampens the aggregate investment demand and lowers the capital good price. The lower capital good price motivates the financially unconstrained firms to invest more, which largely cancels out the financial shock's direct effect in aggregation. If the firm-level heterogeneity is removed, the implied relevance of financial shocks to aggregate investment will be 50 times larger. This sharp difference indicates that representative firm models could overstate the relevance of financial shocks in driving the business cycle fluctuation and highlights the importance of micro-level heterogeneity in identifying the aggregate shocks.

Sprache
Englisch

Erschienen in
Series: Bank of Canada Staff Working Paper ; No. 2020-17

Klassifikation
Wirtschaft
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Investment; Capital; Intangible Capital; Capacity
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Thema
Business fluctuation and cycles
Firm dynamics

Ereignis
Geistige Schöpfung
(wer)
Guo, Xing
Ereignis
Veröffentlichung
(wer)
Bank of Canada
(wo)
Ottawa
(wann)
2020

DOI
doi:10.34989/swp-2020-17
Handle
Letzte Aktualisierung
20.09.2024, 08:23 MESZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Guo, Xing
  • Bank of Canada

Entstanden

  • 2020

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