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Creative destruction, investment volatility, and the average age of capital

  • GERMAIN, Marc
  • LICANDRO, Omar
  • MAGNUS, Alphonse

In this article, a new numerical procedure is used to compute the equilibrium of a vintage capital growth model with nonlinear utility, where the scrapping time is nonconstant. We show that equilibrium investment and output converge nonmonotonically to the balanced growth path due to replacement echoes. We find that the average age of capital is inversely related to output, which is consistent with recent micro evidence reinforcing the importance of the embodied question. We also find that an unanticipated permanent increase in the rate of embodied technological progress causes labor productivity to slowdown in the short run. Copyright 1998 by Kluwer Academic Publishers

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 1376.

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Handle: RePEc:cor:louvrp:1376
Note: In : Journal of Economic Growth, 3, 361-384, 1998
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