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Maintenance, Utilization, and Depreciation along the Business Cycle

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Author Info
Collard, Fabrice
Kollintzas, Tryphon

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Abstract

In this paper we look at the behaviour of maintenance, utilization and physical depreciation over the business cycle. We do so within the context of a real business cycle model where the decisions of firms about physical capital utilization, maintenance, and improvement or scrapping are endogenous. We distinguish between labour input devoted to output production and labour input devoted to maintaining and improving or scrapping existing capital. Firms must first decide the total number of work hours and then how to allocate workers between output production and capital maintenance. The model encompasses the baseline real business cycle model, where the depreciation rate is fixed, or versions of that model where the depreciation rate is an exogenous stochastic process. It also encompasses versions of the real business cycle model where capital utilization is an explicit endogenous variable or enters implicitly a variable work effort. Our model is capable of providing a unified explanation of several stylized facts of business cycle behaviour, including (a) a low correlation between labour productivity and output, (b) a low correlation between wages and productivity and (c) a relatively strong correlation between real wages and hours worked. Making the business cycle propagation richer reduces the variance of the Solow residual needed to match output volatility.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2477.

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Date of creation: Jun 2000
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Handle: RePEc:cpr:ceprdp:2477

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Related research
Keywords: Business Cycle; Depreciation; Maintenance;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22. [Downloadable!]
    Other versions:
  2. Steve Ambler & Alain Paquet, 1992. "Stochastic Depreciation and the Business Cycle Puzzle," Cahiers de recherche CREFE / CREFE Working Papers 8, CREFE, Université du Québec à Montréal.
  3. Fay, Jon A & Medoff, James L, 1985. "Labor and Output over the Business Cycle: Some Direct Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 638-55, September. [Downloadable!] (restricted)
  4. Ingram, B.F. & DeJong, D.N. & Whiteman, C.H. & Wen, Y., 1996. "Cyclical Implications of the Variable Utilization of Physical and Human Capital," Working Papers 96-12, University of Iowa, Department of Economics.
    Other versions:
  5. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital utilization and returns to scale," Working Paper Series, Macroeconomic Issues 95-5, Federal Reserve Bank of Chicago.
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  6. Beaudry, P. & Devereux, M.B., 1995. "Towards an Endogenous Propagation Theory of Business Cycles," UBC Departmental Archives 95-37, UBC Department of Economics.
  7. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
  8. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13. [Downloadable!]
  9. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April. [Downloadable!] (restricted)
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  10. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May. [Downloadable!] (restricted)
  11. Omar Licandro & Luis A. Puch, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annales d'Economie et de Statistique, ADRES, issue 58, pages 06, Avril-Jui. [Downloadable!]
  12. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  13. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  14. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
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  15. Fiorito, Riccardo & Kollintzas, Tryphon, 1994. "Stylized facts of business cycles in the G7 from a real business cycles perspective," European Economic Review, Elsevier, vol. 38(2), pages 235-269, February. [Downloadable!] (restricted)
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  16. Ambler, Steve & Paquet, Alain, 1994. "Stochastic Depreciation and the Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 101-16, February. [Downloadable!] (restricted)
  17. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. P R Agénor, 2005. "Infrastructure Investment and Maintenance Expenditure: Optimal Allocation Rules in a Growing Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 60, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  2. Michael J. Dueker & Andreas M. Fischer & Robert D. Dittmar, 2004. "Stochastic capital depreciation and the comovement of hours and productivity," Working Papers 2002-003, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  3. Raouf, BOUCEKKINE & Blanca, MARTINEZ & Cagri, SAGLAM, 2006. "Capital Maintenance Vs Technology Adopton under Embodied Technical Progress," Discussion Papers (ECON - Département des Sciences Economiques) 2006030, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  4. George Bitros & Elias Flytzanis, 2004. "Utilization and Maintenance in a Model with Terminal Scrapping," Macroeconomics 0411016, EconWPA. [Downloadable!]
  5. Raouf Boucekkine & Blanca Martínez & CARGI SAGLAM, 2003. "Technology Adoption, Capital Maintenance And The Technological Gap," Working Papers. Serie AD 2003-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
    Other versions:
  6. BOUCEKKINE, Raouf & MARTINEZ, Blanca & SAGLAM, Cagri, 2006. "Capital maintenance versus technology adoption under embodied technical progress," CORE Discussion Papers 2006058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
    Other versions:
  7. Omar Licandro & Luis A. Puch & J. Ramón Ruiz-Tamarit, . "Optimal Growth under Endogenous Depreciation, Capital Utilization and Maintenance Costs," Working Papers 2000-23, FEDEA. [Downloadable!]
    Other versions:
  8. Blanca MARTINEZ, 2002. "Technological convergence and the connections between adoption, maintenance and investment activities," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  9. Michael J. Dueker & Andreas M. Fischer, 2003. "Fixing Swiss potholes: the importance of improvements," Working Papers 2001-025, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  10. Michael Dueker & Andreas Fischer, 2003. "Fixing Swiss Potholes: The Importance and Cyclical Nature of Improvements," Working Papers 03.01, Swiss National Bank, Study Center Gerzensee. [Downloadable!]
    Other versions:
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