Essays on Investment and Savings

Abstract

This dissertation consists of three chapters, co-authored with Rodolfo Rigato. In the first chapter, we leverage data on large capital expenditure projects in India to establish causal econometric evidence that time to build is endogenous, contrary to the near-universal assumption of exogenous time to build in investment theory. The second chapter develops a theory of investment with endogeneous time to build. We derive novel results on optimal capital budgeting, chiefly that investment may increase with rises in discount rates; and evaluate the role of endogenous time to build for investment fluctuations and stabilization policy. In the third chapter, we estimate weak precautionary savings out of income risk. Replicating this evidence in a Heterogeneous-Agent New Keynesian framework favors models with present-biased households, and implies weaker stabilization effects of unemployment insurance.