Baley, IsaacBlanco, Andrés2022-05-232022-05-232021Baley I, Blanco A. Aggregate dynamics in lumpy Economies. Econometrica. 2021 May;89(3):1235-64. DOI: 10.3982/ECTA173440012-9682http://hdl.handle.net/10230/53204How does an economy’s capital respond to aggregate productivity shocks when firms make lumpy investments? We show that capital’s transitional dynamics are structurally linked to two steady-state moments: the dispersion of capital to productivity ratios—an indicator of capital misallocation—and the covariance of capital to productivity ratios with the time elapsed since their last adjustment—an indicator of asymmetric costs of upsizing and downsizing the capital stock. We compute these two sufficient statistics using data on the size and frequency of investment of Chilean plants. The empirical values indicate significant effects of aggregate productivity shocks and favor investment models with a strong downsizing rigidity and random opportunities for free adjustments.application/pdfeng© 2021 The Authors. Econometrica published by John Wiley & Sons Ltd on behalf of The Econometric Society. Isaac Baley is the corresponding author on this paper. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License (https://creativecommons.org/licenses/by-nc-nd/4.0/), which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.info:eu-repo/semantics/articlehttp://dx.doi.org/10.3982/ECTA17344InactionLumpinessTransitional dynamicsSufficient statisticsNon-convex adjustment costsInvestmentState-dependenceTime-dependenceinfo:eu-repo/semantics/openAccess