We study aggregate capital dynamics in an investment model with idiosyncratic productivity shocks, fixed capital adjustment costs, and irreversibility driven by a wedge between capital purchase and resale prices. We derive sufficient statistics that capture the role of investment frictions in aggregate capital fluctuations, measure these statistics using investment microdata, and exploit them to discipline the capital price wedge. Irreversibility doubles the persistence of capital fluctuations and is crucial for reconciling micro-level investment behaviour with macroeconomic propagation.

How does an economy's capital respond to aggregate productivity shocks when firms make lumpy investments? We show that capital's transitional dynamics are structurally linked to two steady‐state moments: the dispersion of capital to productivity ratios—an indicator of capital misallocation—and the covariance of capital to productivity ratios with the time elapsed since their last adjustment—an indicator of asymmetric costs of upsizing and downsizing the capital stock. We compute these two sufficient statistics using data on the size and frequency of investment of Chilean plants. The empirical values indicate significant effects of aggregate productivity shocks and favor investment models with a strong downsizing rigidity and random opportunities for free adjustments.

We empirically characterize episodes of large inflation surges observed worldwide in the last three decades. We document four facts. (1) Inflation surges tend to be persistent, with the duration of disinflation exceeding that of the initial inflation increase. (2) Surges are initially unexpected but followed by a gradual catch-up of average short-term expectations with realized inflation. (3) Long-term inflation expectations tend to exhibit increases that persist throughout disinflation. (4) Policy responses are characterized by hikes in nominal interest rates but no tightening of real rates or fiscal balances, departing from textbook policy rules, and instead exhibiting a “fear of tightening.”

We develop a model that integrates modern theories of labor market flows with nominal wage rigidities to study the consequences of inflation on the labor market. Nominal wage stickiness incentivizes workers to engage in job-to-job transitions after an unexpected increase in the price level. Such dynamics lead to a rise in aggregate vacancies associating a seemingly tight labor market with lower real wages—two facts observed during the recent inflation period. The calibrated model jointly matches aggregate and cross-sectional trends in worker flows and wages during the 2021–2024 period. Using historical data, we show that prior periods of high inflation were also associated with increasing vacancies and upward shifts in the Beveridge curve. Our results suggest that policy makers and academics should be cautious about viewing the rise in the vacancy-to-unemployment rate as a sign of a tight labor market during inflationary periods without holistically looking at other labor market indicators.