This paper studies the entry and exit of U.S. manufacturing plants over the business cycle and compares the results with those from a vintage capital model augmented to reproduce observed features of the plant life cycle. Looking at the entry and exit of plants provides new evidence supporting the hypothesis that shocks to embodied technological change are a significant source of economic fluctuations. In the U.S. economy, the entry rate covaries positively with output and total factor productivity growth, and the exit rate leads all three of these. A vintage capital model in which all technological progress is embodied in new plants reproduces these patterns. In the model economy, a persistent improvement to embodied technology induces obsolete plants to cease production, causing exit to rise. Later, as entering plants embodying the new technology become operational, both output and productivity increase.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5955.
Length: Date of creation: Mar 1997 Date of revision: Handle: RePEc:nbr:nberwo:5955
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Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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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.:
Cooley, T.F. & Greenwood, J. & Yorukoglu, M., 1997.
"The Replacement Problem,"
RCER Working Papers
444, University of Rochester - Center for Economic Research (RCER).
Other versions:
Thomas F. Cooley & Jeremy Greenwood & Mehmet Yorukoglu, 1994.
"The Replacement Problem,"
Working Papers
9408, Centro de Investigacion Economica, ITAM.
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