Plant-level nonconvex output adjustment and aggregate fluctuations

► In manufacturing, plant-level output is adjusted in a discrete, lumpy way. ► Only a fraction of plants adjust output in response to shocks. ► Calibrated to U.S. observations, this reduces responses of aggregate output to shocks. ► Volatility of aggregate output becomes counter-cyclical. ► Expansionary government policy becomes slightly more effective in downturns.