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The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle

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  • Andrea Lanteri

Abstract

This paper studies the business-cycle dynamics of secondary markets for physical capital and their effects on the macroeconomy. In the data, both capital reallocation and the price of used capital are procyclical. To rationalize these facts, I propose a model with endogenous partial irreversibility, where used investment goods are imperfect substitutes for new ones because of firm-level capital specificity. Equilibrium dynamics in the market for used capital induce countercyclical dispersion of marginal products of capital, propagate movements in aggregate TFP and provide a microfoundation for state-dependent non-convex capital adjustment costs.

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  • Andrea Lanteri, 2018. "The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle," American Economic Review, American Economic Association, vol. 108(9), pages 2383-2419, September.
  • Handle: RePEc:aea:aecrev:v:108:y:2018:i:9:p:2383-2419
    Note: DOI: 10.1257/aer.20160131
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    Citations

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    Cited by:

    1. Feng Dong & Pengfei Wang & Yi Wen, 2018. "A Search-Based Neoclassical Model of Capital Reallocation," Working Papers 2018-17, Federal Reserve Bank of St. Louis.
    2. Alex Clymo, 2018. "Firm Dynamics at the Zero Lower Bound," 2018 Meeting Papers 912, Society for Economic Dynamics.
    3. Adriano A. Rampini, 2019. "Financing Durable Assets," American Economic Review, American Economic Association, vol. 109(2), pages 664-701, February.
    4. Gavazza, Alessandro & Lanteri, Andrea, 2018. "Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets," CEPR Discussion Papers 13229, C.E.P.R. Discussion Papers.
    5. Samaniego, Roberto & Sun, Juliana, 2016. "Gray's Anatomy: Understanding Uncertainty," MPRA Paper 72787, University Library of Munich, Germany.
    6. Kehrig, Matthias & Vincent, Nicolas, 2019. "Good Dispersion, Bad Dispersion," CEPR Discussion Papers 13772, C.E.P.R. Discussion Papers.
    7. Samaniego, Roberto, 2016. "The Embodiment Controversy: on the Policy Implications of Vintage Capital models," MPRA Paper 73348, University Library of Munich, Germany.
    8. Wei Cui, 2017. "Macroeconomic Effects of Delayed Capital Liquidation," Discussion Papers 1719, Centre for Macroeconomics (CFM).
    9. Sandro Brusco & Giuseppe Lopomo & Eva Ropero & Alessandro T. Villa, 2018. "Optimal Financial Contracting and the Effects of Firm's Size," Department of Economics Working Papers 18-13, Stony Brook University, Department of Economics.
    10. Randall Wright & Xiaolin Xiao & Yu Zhu, 2018. "Frictional Capital Reallocation II: Ex Post Heterogeneity," 2018 Meeting Papers 544, Society for Economic Dynamics.
    11. Matthias Kehrig & Nicolas Vincent, 2017. "Do Firms Mitigate or Magnify Capital Misallocation? Evidence from Plant-Level Data," Working Papers 17-14, Center for Economic Studies, U.S. Census Bureau.
    12. Randall Wright & Sylvia Xiaolin Xiao & Yu Zhu, 2019. "Frictional Capital Reallocation I: Ex Ante Heterogeneity," Staff Working Papers 19-4, Bank of Canada.
    13. Matthias Kehrig & Nicolas Vincent, 2018. "Do Firms Mitigate or Magnify Capital Misallocation? Evidence from Plant-Level Data," 2018 Meeting Papers 233, Society for Economic Dynamics.
    14. Junghoon Lee, 2016. "Technological Change and Reallocation," Emory Economics 1604, Department of Economics, Emory University (Atlanta).
    15. SAKAI Koji & UESUGI Iichiro, 2019. "Credit Reallocation, Firm Size, and Productivity," Discussion papers 19004, Research Institute of Economy, Trade and Industry (RIETI).
    16. Matthias Kehrig & Nicolas Vincent, 2017. "Do Firms Mitigate or Magnify Capital Misallocation? Evidence from Plant-Level Data," Working Papers 17-14, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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