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Stochastic Depreciation and the Business Cycle Puzzle

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Author Info
Steve Ambler () (Center for Research on Economic Fluctuations and Employment, UQAM)
Alain Paquet () (Center for Research on Economic Fluctuations and Employment, UQAM)

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Abstract

We study a version of the neoclassical growth model in which shocks to both aggregate productivity and the depreciation of capital generate fluctuations around the steady-state growth path. Depreciation shocks induce an inverse comovement between average labor productivity and hours worked. When the model is calibrated to U.S. data, it generates a correlation between productivity and hours which is significantly closer to the observed value than that of standard real business cycle models. Furthermore, the addition of depreciation shocks does not cause a deterioration of the predictions of the model concerning other comovements.

Nous étudions une version du modèle de croissance néoclassique dans lequel l'économie est assujettie à deux types de chocs. Des chocs agrégés de productivité ainsi que des chocs spécifiques sur le taux de dépréciation du capital génèrent des fluctuations autour du sentier de croissance équilibrée. Ces chocs de dépréciation induisent une corrélation négative entre la productivité moyenne de travail et le nombre d'heures travaillés. Pour une calibration du modèle compatible avec les données américaines, nous obtenons une corrélation heures-emploi qui est significativement plus près de la valeur observée que ce n'est le cas pour les modèles réels standards du cycle. De plus, l'ajout de chocs de dépréciation n'occasionne pas de détérioration des prédictions du modèle quant à d'autres co-mouvements.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 8.

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Length: 27 pages
Date of creation: Dec 1992
Date of revision:
Publication status: Published, International Economic Review, 35, pages 101-116, 1994
Handle: RePEc:cre:crefwp:8

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Related research
Keywords: real business cycles; labor productivity; depreciation;

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

Cited by:
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  1. 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:
  2. Michael C. Burda & Battista Severgnini, 2008. "Solow Residuals without Capital Stocks," SFB 649 Discussion Papers SFB649DP2008-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  3. William Blankenau & M. Ayhan Kose & Kei-Mu Yi, 1999. "Can world real interest rates explain business cycles in a small open economy?," Staff Reports 94, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  4. Beatriz Rumbos & Leonardo Auernheimer, 2001. "Endogenous capital utilization in a neoclassical growth model," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(2), pages 121-134, June. [Downloadable!] (restricted)
  5. Rodrigo Suescún, 1995. "Growth Welfare Costs And Aggregate Fluctuations In Economies With Monetary Taxation," BORRADORES DE ECONOMIA 002774, BANCO DE LA REPÚBLICA. [Downloadable!]
    Other versions:
  6. M. Ayhan Kose & Bill Blankenau & Kei-Mu Yi, 1999. "World Real Interest Rates and Business Cycles in Open Economies: a Multiple Shock Approach," Computing in Economics and Finance 1999 1232, Society for Computational Economics. [Downloadable!]
  7. Collard, Fabrice & Kollintzas, Tryphon, 2000. "Maintenance, Utilization, and Depreciation along the Business Cycle," CEPR Discussion Papers 2477, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Inwon Jang & Richard Wong & Hyeon-seung Huh, 2008. "Optimal capital investment under uncertainty: An extension," Economics Bulletin, Economics Bulletin, vol. 5(4), pages 1-7. [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:
  11. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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