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Capital Maintenance and Depreciation over the Business Cycle

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  • Alice Albonico
  • Sarantis Kalyvitis

    ()
    (DIEES, AUEB)

  • Evi Pappa

Abstract

This paper develops and estimates a stochastic general equilibrium model with capital maintenance, which affects endogenously the depreciation rate of capital. The estimate of maintenance series is found to track survey-based measures for Canada quite closely and to generate the procyclical pattern of maintenance observed in the data. We use it to infer the time profile of equipment capital depreciation in Canadian and US manufacturing. Contrary to existing estimates, the depreciation rate is estimated to be volatile and highly procyclical over that last 50 years in both countries.

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Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1326.

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Handle: RePEc:aue:wpaper:1326

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Keywords: real business cycle; endogenous capital depreciation; maintenance;

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