Introduction

Abstract

The empirical analysis of firms’ investment decisions has experienced renewed interest during recent years, mainly driven by new developments in the theory of investment. This new literature addresses two related issues: First, the empirical failure of earlier neoclassical investment models in explaining stylized facts of firms’ investment decisions, and second, the need to provide solid microfoundations for macroeconomic models in general. The resulting research program hence concentrates on models of firm investment which are both theoretically and empirically more satisfactory than the standard neoclassical framework. The ultimate goal is to better understand the dynamics of both disaggregate and aggregate investment in the presence of phenomena such as endogenous entry and exit decisions and non-standard constraints (irreversibilities, non-convex adjustment costs, or financial constraints). Hopefully, this research program will also result in a better understanding of the internal dynamics of the macroeconomy and its responses to exogenous shocks, be they real (technological) or nominal (monetary), in dynamic general equilibrium.