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Maintenance and repair: too big to ignore

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  • Ellen R. McGrattan
  • James A. Schmitz

Abstract

Most models of aggregate economic activity, like the standard neoclassical growth model, ignore the fact that equipment and structures are maintained and repaired. Once physical capital is purchased in these models, there are typically no more decisions made regarding its use. The theme of this article is that there is evidence to suggest that incorporating expenditures on the maintenance and repair of physical capital into models of aggregate economic activity will change the quantitative answers to some key questions that have been addressed with these models. This evidence is primarily from a little-used economywide survey in Canada. The survey shows that the activity of maintaining and repairing equipment and structures is an activity that is generally both large relative to investment and a substitute for investment to some extent—and to a large extent during some episodes.

Suggested Citation

  • Ellen R. McGrattan & James A. Schmitz, 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
    • Handle: RePEc:fip:fedmqr:y:1999:i:fall:p:2-13:n:v.23no.4
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    References listed on IDEAS

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    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Laitner, John, 1995. "Quantitative Evaluations of Efficient Tax Policies for Lucas' Supply Side Models," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 471-492, July.
    3. Robert J. Gordon, 1992. "Forward Into the Past: Productivity Retrogression in the Electric Generating Industry," NBER Working Papers 3988, National Bureau of Economic Research, Inc.
    4. Goolsbee, Austan, 2004. "Taxes and the quality of capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 519-543, March.
    5. Ana M. Aizcorbe & Sharon Kozicki, 1995. "The comovement of output and labor productivity in aggregate data for auto assembly plants," Finance and Economics Discussion Series 95-33, Board of Governors of the Federal Reserve System (U.S.).
    6. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    7. Solomon Fabricant, 1938. "Capital Consumption and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number fabr38-1.
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    Keywords

    Econometric models;

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