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The role of capital service-life in a model with heterogenous labor and vintage capital

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  • Milton H. Marquis
  • Wuttipan Tantivong
  • Bharat Trehan

Abstract

We examine how the economy responds to both disembodied and embodied technology shocks in a model with vintage capital. We focus on what happens when there is a change in the number of vintages of capital that are in use at any one time and on what happens when there is a change in the persistence of the shocks hitting the economy. The data suggest that these kinds of changes took place in the U.S. economy in the 1990s, when the pace of embodied technical progress appears to have accelerated. We find that embodied technology shocks lead to greater variability (of output, investment and labor allocations) than disembodied shocks of the same size. On the other hand, a decrease in the number of vintages in use at any time (such as is likely to occur when the pace of technical progress accelerates) tends to reduce the volatility of output and also to differentiate the initial response of the economy to the two shocks.

Suggested Citation

  • Milton H. Marquis & Wuttipan Tantivong & Bharat Trehan, 2009. "The role of capital service-life in a model with heterogenous labor and vintage capital," Working Paper Series 2009-24, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2009-24
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    References listed on IDEAS

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    Keywords

    Technology; Technological innovations; Labor productivity;
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