Hostname: page-component-6898cfcb55-th4rj Total loading time: 0 Render date: 2026-11-11T18:27:18.082Z Has data issue: false hasContentIssue false
  • English
  • Français

A NOTE ON VARIABLE CAPITAL UTILIZATION IN GROWTH AND BUSINESS CYCLE THEORY

Published online by Cambridge University Press:  24 March 2014

Holger Strulik and
Timo Trimborn
Holger Strulik
Affiliation:
University of Goettingen
Timo Trimborn*
Affiliation:
University of Goettingen
*
Address correspondence to: Timo Trimborn, Faculty of Economic Sciences, University of Goettingen, Platz der Goettinger Sieben 3, 37073 Goettingen, Germany; e-mail: timo.trimborn@wiwi.uni-goettingen.de.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

It was always considered to be a major achievement of modern business cycle economics that it was solidly grounded in neoclassical growth theory. Preserving this joint foundation, however, imposes a discipline on the specification of models with variable capital utilization. In this note we show that conventional specifications of the depreciation cost of capital utilization and the labor supply elasticity, introduced into business cycle theory to generate a satisfactory amplification of shocks, entail counterfactual growth dynamics: the positive association between capital stock and GDP along the growth path turns negative. Across economies with access to the same technology, the economy with the lowest capital stock per capita is predicted to produce the highest output per capita. We compute lower and upper bounds for the involved elasticities between which these counterfactual dynamics are avoided.

Keywords

Business CyclesEconomic GrowthCapital UtilizationLabor Supply

Information

Type
Notes
Information
Macroeconomic Dynamics , Volume 19 , Issue 7 , October 2015, pp. 1622 - 1632
Copyright
Copyright © Cambridge University Press 2014 

References

REFERENCES

Alvarez-Cuadrado, F. (2008) Growth outside the stable path: Lessons from the European reconstruction. European Economic Review 52, 568–588.CrossRefGoogle Scholar
Barro, R.J. (2006) Rare disasters and asset markets in the twentieth century. Quarterly Journal of Economics 121, 823–866.CrossRefGoogle Scholar
Barro, R.J. and Sala-i-Martin, X. (2004) Economic Growth. Cambridge, MA: MIT Press.Google Scholar
Barro, R.J. and Ursua, J.F. (2008) Macroeconomic crises since 1870. Brookings Papers on Economic Activity (Spring), 255–335.Google Scholar
Basu, S. and Kimball, M.S. (1997) Cyclical Productivity with Unobserved Input Variation. Working paper w5915, National Bureau of Economic Research.CrossRefGoogle Scholar
Baxter, M. and Farr, D.D. (2005) Variable capital utilization and international business cycles. Journal of International Economics 65, 335–347.CrossRefGoogle Scholar
Bouccekkine, R., Del Rio, F., and Martinez, B. (2009) Technological progress, obsolescence, and depreciation. Oxford Economic Papers 61, 440–466.CrossRefGoogle Scholar
Bouccekkine, R. and Ruiz-Tamarit, R. (2003) Capital maintenance and investment: Complements or substitutes? Journal of Economics 78, 1–28.CrossRefGoogle Scholar
Burnside, C. and Eichenbaum, M. (1996) Factor-hoarding and the propagation of business-cycle shocks. American Economic Review 86, 1154–1174.Google Scholar
Campbell, J.Y. (1994) Inspecting the mechanism: An analytical approach to the stochastic growth model. Journal of Monetary Economics 33, 463–506.CrossRefGoogle Scholar
Cavallo, E. and Noy, I. (2011) Natural disasters and the economy—A survey. International Review of Environmental and Resource Economics 5, 63–102.CrossRefGoogle Scholar
Chatterjee, S. (2005) Capital utilization, economic growth and convergence. Journal of Economic Dynamics and Control 29, 2093–2124.CrossRefGoogle Scholar
Chetty, R. (2006) A new method of estimating risk aversion. American Economic Review 96, 1821–1834.CrossRefGoogle Scholar
Dalgaard. (2003) Idle capital and long-run productivity. Contributions to Macroeconomics 3, Article 6.CrossRefGoogle Scholar
Dumke, R.H. (1990) Reassessing the Wirtschaftswunder: Reconstruction and postwar growth in West Germany in an international context. Oxford Bulletin of Economics and Statistics 52 (2), 451–492.CrossRefGoogle Scholar
Greenwood, J., Hercowitz, Z., and Huffman, G.W. (1988) Investment, capacity utilization, and the real business cycle. American Economic Review 78, 402–417.Google Scholar
Hochrainer, S. (2009) Assessing the Macroeconomic Impacts of Natural Disasters. World Bank policy research working paper 4968.Google Scholar
Johnson, P.A. (1994) Capital utilization and investment when capital depreciates in use: Some implications and tests. Journal of Macroeconomics 16 (2), 243–259.CrossRefGoogle Scholar
King, R.G. and Rebelo, S.T. (1999) Resuscitating real business cycles. In Taylor, B. and Woodford, M. (eds.), Handbook of Macroeconomics 1B, 927–1007. Amsterdam: Elsevier Science, North-Holland.Google Scholar
Licandro, O. and Puch, L.A. (2000) Capital utilization, maintenance costs and the business cycle. Annales d'Economie et de Statistique 58, 143–164.CrossRefGoogle Scholar
Noy, I. (2009) The macroeconomic consequences of disasters. Journal of Development Economics 88, 221–231.CrossRefGoogle Scholar
Prescott, E.C. (2006) Nobel lecture: The transformation of macroeconomic policy and research. Journal of Political Economy 114, 203–235.CrossRefGoogle Scholar
Raddatz, C. (2007) Are external shocks responsible for the instability of output in low-income countries? Journal of Development Economics 84, 155–187.CrossRefGoogle Scholar
Rebelo, S. (2005) Real business cycle models: Past, present and future. Scandinavian Journal of Economics 107, 217–238.CrossRefGoogle Scholar
Rogerson, R. (1988) Indivisible labor, lotteries and equilibrium. Journal of Monetary Economics 21, 3–16.CrossRefGoogle Scholar
Smolny, W. (2000) Post-war growth, productivity convergence and reconstruction. Oxford Bulletin of Economics and Statistics 62 (5), 589–606.CrossRefGoogle Scholar
Strobl, E. (2011) The economic growth impact of hurricanes: Evidence from US coastal counties. Review of Economics and Statistics 93 (2), 575–589.CrossRefGoogle Scholar
Trimborn, T., Koch, K.-J., and Steger, T.M. (2008) Multi-dimensional transitional dynamics: A simple numerical procedure. Macroeconomic Dynamics 12, 1–19.CrossRefGoogle Scholar
Wen, Y. (1998) Capacity utilization under increasing returns to scale. Journal of Economic Theory 81, 7–36.CrossRefGoogle Scholar