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The Aggregate Implications of Machine Replacement: Theory and Evidence

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  • Cooper, Russell
  • Haltiwanger, John

Abstract

The authors study an economy in which producers incur resource costs to replace depreciated machines. The process of costly replacement and depreciation creates endogenous fluctuations in productivity, employment, and output of a single producer. The authors explore the spillover effects of machine replacement on other sectors of the economy and provide conditions for synchronized machine replacement by multiple independent producers. The implications of their model are generally consistent with observed monthly output, employment, and productivity fluctuations in automobile plants. Synchronization of retooling across plants within the auto industry is widespread, so that the fluctuations observed at the plant level have aggregate implications. Copyright 1993 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 83 (1993)
Issue (Month): 3 (June)
Pages: 360-82

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Handle: RePEc:aea:aecrev:v:83:y:1993:i:3:p:360-82

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  1. Cooper, Russell W. & Haltiwanger, John Jr., 1992. "Macroeconomic implications of production bunching : Factor demand linkages," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 107-127, October.
  2. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
  3. Bresnahan, Timothy F & Ramey, Valerie A, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 593-624, August.
  4. Nickell, Stephen, 1975. "A closer look at replacement investment," Journal of Economic Theory, Elsevier, vol. 10(1), pages 54-88, February.
  5. Robert E. Hall, 1991. "Labor Demand, Labor Supply, and Employment Volatility," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 17-62 National Bureau of Economic Research, Inc.
  6. Russell Cooper & John Haltiwanger, 1990. "The Aggregate Implications of Machine Replacement: Theory and Evidence," NBER Working Papers 3552, National Bureau of Economic Research, Inc.
  7. Peter Klenow, 1998. "Learning Curves and the Cyclical Behavior of Manufacturing Industries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 531-550, April.
  8. Chatterjee, Satyajit & Ravikumar, B., 1992. "A neoclassical model of seasonal fluctuations," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 59-86, February.
  9. Ghysels, E., 1991. "Are Business Cycle Turning Points Uniformly Distributed Throughout the Year?," Cahiers de recherche 9135, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  10. Robert B. Barsky & Jeffrey A. Miron, 1988. "The Seasonal Cycle and the Business Cycle," NBER Working Papers 2688, National Bureau of Economic Research, Inc.
  11. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Increasing Returns, Durables and Economic Fluctuations," NBER Working Papers 3014, National Bureau of Economic Research, Inc.
  12. Martin S. Eichenbaum, 1988. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," NBER Working Papers 2523, National Bureau of Economic Research, Inc.
  13. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December.
  14. Russell Cooper & John Haltiwanger, 1992. "Autos and the National Industrial Recovery Act: Evidence on Industry Complementarities," Papers 0028, Boston University - Industry Studies Programme.
  15. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  16. Braun, R Anton & Evans, Charles L, 1998. "Seasonal Solow Residuals and Christmas: A Case for Labor Hoarding and Increasing Returns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 306-30, August.
  17. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  18. repec:fth:coluec:465 is not listed on IDEAS
  19. J. Joseph Beaulieu & Jeffrey A. Miron, 1990. "The Seasonal Cycle in U.S. Manufacturing," Papers 0012, Boston University - Industry Studies Programme.
  20. Stephen G. Cecchetti & Anil Kashyap & David Wilcox, 1995. "Why Firms Smooth Seasonals in a Boom," Working Papers 001, Ohio State University, Department of Economics.
  21. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-59, June.
  22. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  23. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
  24. Mas-Colell, Andreu, 1977. "Indivisible commodities and general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 16(2), pages 443-456, December.
  25. Blanchard, Olivier J. & Melino, Angelo, 1986. "The cyclical behavior of prices and quantities: The case of the automobile market," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 379-407, May.
  26. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  27. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
  28. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
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