T. Dangl, Y. Wu:
"Corporate Investment Over the Business Cycles";
Talk: Annual Meeting of the American Economic Association, Philadilphia; 01-03-2014 - 01-05-2014.

We investigate the dynamics of corporate investment at the firm and aggregate levels. We fi nd that the average capital growth rate across fi rms exhibits
negative spikes, despite the positive spikes at the fi rm level. Furthermore, while
individual firms climb up their investment spikes and come down at an equal
speed, the average capital growth rate declines to the trough much faster than it
recovers. We develop a dynamic model of investment that replicates these pat-
terns. The model features costly reversibility, cyclical macroeconomic shocks,
and uncertainty about the true state of the economy. The interaction between
the expected future growth and the option value of waiting leads to a convex
relation between a fi rm's optimal capacity and its posterior belief of being in
an expansion. The endogenous distribution of fi rms relative to their optimal
capacities causes firms in aggregate to react more strongly to negative signals
during an expansion than to positive signals during a recession.

investment under uncertainty, business cycle