The Nature of Capital Expenditures over the Business Cycle

Abstract

We document business cycle statistics, cross-sectional properties, and within-firm adjustment patterns of capital expenditures on capacity increases, restructuring, rationalization, replacement and maintenance, and other investment projects. Over the business cycle, we find that (i) all investment types are at least weakly pro-cyclical; (ii) the volatility of capacity increases, restructuring, and other investment projects is relatively higher; (iii) the composition of total aggregate investment is time-varying. Moreover, we show that expenditures on capacity increases, restructuring, and other investment projects exhibit relatively stronger lumpy investment. Taken together, these results suggest that the lumpiness in total aggregate investment changes over the business cycle. Our stylized facts shed light on capital adjustment frictions, business cycle theories, and will inform quantitative models of disaggregate investment behavior.

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