| Abstract |
I theoretically and quantitatively show that the cross-sectional ranking of the interest-elasticities of investment between large and small firms is counterfactually flipped in the models with fixed and convex adjustment costs. Then, I develop a heterogeneous-firm real business cycle model where the semi-elasticities of large and small firms’ investments are matched with the empirical estimates. In the model, following a negative TFP shock, the timings of large firms’ lumpy investments are significantly synchronized due to the low elasticity to the general equilibrium effect. After a surge of large firms’ lumpy investments, TFP-induced recessions are especially severe, and the semi-elasticity of the aggregate investment drops significantly. |