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Concentration of Capital Ownership and Investment Fluctuations

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  • Zvi Hercowitz

    (Tel Aviv University)

Abstract

This paper is motivated by the observation that investment tends to accelerate when output is around trend. The model used to explain this observation is based on the capacity-constrained production setup in Hansen and Prescott (2001), where capacity is constant over time, and on capital being owned by a fraction of the agents in the economy. When capacity is reached, the capital share increases because its component from capacity ownership becomes positive. The concentration of capital ownership leads then to an acceleration of investment.generated by the desire of capital owners to smooth consumption.as well as to a deceleration of total consumption. The results from the calibrated model contribute, although only partially, to the explanation of the observed behavior. (Copyright: Elsevier)

Suggested Citation

  • Zvi Hercowitz, 2004. "Concentration of Capital Ownership and Investment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 668-686, July.
    • Handle: RePEc:red:issued:v:7:y:2004:i:3:p:668-686
    DOI: 10.1016/j.red.2003.12.004
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    References listed on IDEAS

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    1. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    2. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    3. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    4. 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 402-417, June.
    5. Gary D. Hansen & Edward C. Prescott, 2005. "Capacity constraints, asymmetries, and the business cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 850-865, October.
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