Three Essays on Applied Macroeconomics

This dissertation comprises three essays on the macroeconomic and asset pricing implications of firm investment and innovation decisions. It examines how fixed adjustment costs, firm heterogeneity, and the timing of innovation returns shape aggregate fluctuations, growth, and equity returns. The first essay develops a theory of lumpy innovation in a business cycle model with heterogeneous firms, endogenous innovation, and fixed adjustment costs. The model shows how lower aggregate volatility can delay the implementation of innovative ideas, increase downside risk, and reduce average growth. Its quantitative analysis connects the Great Moderation to the severity of the subsequent Great Recession, while microeconomic and macroeconomic evidence supports the proposed innovation mechanism. The second essay documents that green innovation is countercyclical, whereas non-green innovation is procyclical. This pattern holds in aggregate and firm-level data and conditional on macroeconomic shocks. A model with endogenous green and non-green innovation explains these differences through the timing of expected profits: green innovations generate more of their returns in the future and are less sensitive to short-term fluctuations. General equilibrium effects reinforce the reallocation of innovation toward green technologies during downturns. Evidence from market-implied patent values supports this mechanism. The third essay derives a measure of expected capital distortion due to fixed adjustment costs and applies it to U.S. firms. Industries with greater adjustment frictions exhibit higher equity returns and lower market betas. A quantitative asset pricing model explains these findings through heterogeneous exposure to aggregate productivity and adjustment friction shocks. Together, the essays highlight the importance of firm-level frictions and extensive-margin decisions for understanding macroeconomic dynamics, the green transition, and asset prices.