ABSTRACT
The 1990s have witnessed a revival in economist's interest and hope of explaining aggregate and microeconomic demand behaviour.
On the investment side, a large theoretical debate has arisen on lumpiness and irreversibility.1 As is known, in standard neo-classical models of investment, assumptions, such as convex adjustment costs and reversibility, dictate that firms continuously and smoothly adjust their capital stock over time.2 By contrast, a growing number of studies has suggested that capital adjustment may occur in lumpy episodes: firms occasionally adjust their capital in discrete bursts when the capital stock falls (rises) below (above) a threshold level.
