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The Aggregate Implications Of Machine Replacement: Theory And Evidence

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  • John Haltiwanger
  • Russell Cooper

Abstract

This paper studies 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. We also 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 our 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.

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File URL: ftp://ftp2.census.gov/ces/wp/1992/CES-WP-92-12.pdf
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 92-12.

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Date of creation: Oct 1992
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Handle: RePEc:cen:wpaper:92-12

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Keywords: CES; economic; research; micro; data; microdata; chief; economist;

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References

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  1. Blanchard, Olivier J. & Melino, Angelo, 1986. "The cyclical behavior of prices and quantities: The case of the automobile market," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(3), pages 379-407, May.
  2. 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.
  3. J. Joseph Beaulieu & Jeffrey A. Miron, 1990. "The Seasonal Cycle in U.S. Manufacturing," Papers, Boston University - Industry Studies Programme 0012, Boston University - Industry Studies Programme.
  4. Cooper, Russell & Haltiwanger, John, 1993. "The Aggregate Implications of Machine Replacement: Theory and Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 360-82, June.
  5. Stephen G. Cecchetti & Anil Kashyap & David Wilcox, 1995. "Why Firms Smooth Seasonals in a Boom," Working Papers, Ohio State University, Department of Economics 001, Ohio State University, Department of Economics.
  6. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 85(4), pages 605-22, November.
  7. Satyajit Chatterjee & B. Ravikumar, 1991. "A neoclassical model of seasonal fluctuations," Working Papers 91-23, Federal Reserve Bank of Philadelphia.
  8. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, Econometric Society, vol. 42(3), pages 393-423, May.
  9. Robert B. Barsky & Jeffrey A. Miron, 1988. "The Seasonal Cycle and the Business Cycle," NBER Working Papers 2688, National Bureau of Economic Research, Inc.
  10. Eichenbaum, Martin, 1989. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 853-64, September.
  11. 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.
  12. R. Anton Braun & Charles L. Evans, 1991. "Seasonal Solow residuals and Christmas: a case for labor hoarding and increasing returns," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-20, Federal Reserve Bank of Chicago.
  13. Nickell, Stephen, 1975. "A closer look at replacement investment," Journal of Economic Theory, Elsevier, Elsevier, vol. 10(1), pages 54-88, February.
  14. 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.
  15. repec:fth:coluec:465 is not listed on IDEAS
  16. Russell Cooper & John Haltiwanger, 1992. "Autos and the National Industrial Recovery Act: Evidence on Industry Complementarities," NBER Working Papers 4100, National Bureau of Economic Research, Inc.
  17. 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, University of Chicago Press, vol. 99(3), pages 439-59, June.
  18. Timothy F. Bresnahan & Valerie A. Ramey, 1992. "Output Fluctuations at the Plant Level," NBER Working Papers 4105, National Bureau of Economic Research, Inc.
  19. Russell Cooper & John Haltiwanger, 1990. "Macroeconomic Implications of Production Bunching: Factor Demand Linkages," Papers, Boston University - Industry Studies Programme 0001, Boston University - Industry Studies Programme.
  20. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  21. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers, Columbia University, Department of Economics 1990_20, Columbia University, Department of Economics.
  22. Mas-Colell, Andreu, 1977. "Indivisible commodities and general equilibrium theory," Journal of Economic Theory, Elsevier, Elsevier, vol. 16(2), pages 443-456, December.
  23. Ghysels, E., 1991. "Are Business Cycle Turning Points Uniformly Distributed Throughout the Year?," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9135, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  24. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  25. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  26. 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.
  27. 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.
  28. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262540932, December.
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