Lumpy investment and the monetary transmission mechanism

Michael Reiter, Tommy Sveen, Lutz Weinke

Research output: Contribution to journalArticle

Abstract

The lumpy nature of plant-level investment is generally not taken into account in the context of New Keynesian monetary theory (see, e.g., Christiano et al., 2005; Woodford, 2005). Our main result shows that if this theory is augmented by a standard model of lumpy investment, monetary policy shocks lead to large but very short-lived impacts on output and inflation, in a way that goes against empirical evidence and the consensus view in the literature.

Original languageEnglish (US)
Pages (from-to)821-834
Number of pages14
JournalJournal of Monetary Economics
Volume60
Issue number7
DOIs
StatePublished - Oct 2013

Keywords

  • Lumpy investment
  • Sticky prices

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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