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Real Business Cycles with Capital Maintenance

  • Alice Albonico

    ()

    (Department of Economics and Quantitative Methods, University of Pavia)

  • Sarantis Kalyvitis

    ()

    (Department of International and European Economic Studies, Athens University of Economics and Business)

  • Evi Pappa

    ()

    (Departament de Economia y d’Historia Economica, Universitat Autonoma de Barcelona and CEPR)

We develop a stochastic general equilibrium model in which maintenance endogenously affects the capital depreciation rate. The model performs well in generating maintenance series that match closely existing survey-based measures for Canada. Maintenance is procyclical and comoves almost always with output. Investmentspecific shocks are the only disturbances that induce a negative correlation between output and maintenance. This feature is crucial for the identification of such shocks in the short run. We use Bayesian estimation to obtain the time profile of equipment capital depreciation in Canadian manufacturing. The depreciation rate has been quite volatile and procyclical over the last 50 years.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q147.pdf
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Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 147.

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Length: 39 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:pav:wpaper:147
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  1. Randy A. Nelson & Michael R. Caputo, 2000. "Price Changes, Maintenance, And The Rate Of Depreciation," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 422-430, August.
  2. Justiniano, Alejandro & Primiceri, Giorgio E & Tambalotti, Andrea, 2009. "Investment Shocks and the Relative Price of Investment," CEPR Discussion Papers 7598, C.E.P.R. Discussion Papers.
  3. Selo Imrohoroglu & Kaiji Chen & Ayse Imrohoroglu, 2005. "Japanese Saving Rate," 2005 Meeting Papers 747, Society for Economic Dynamics.
  4. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  5. Peeters, Marga & Ghijsen, Paul, 1995. "Capital, Labour, Materials and Additional R&D Investment in Japan. The Issue of (Double-) Counting," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Raouf Boucekkine & Fernando del Río & Blanca Martínez, 2009. "Technological progress, obsolescence, and depreciation," Oxford Economic Papers, Oxford University Press, vol. 61(3), pages 440-466, July.
  7. Boucekkine, R. & Fabbri, G. & Gozzi, F., 2010. "Maintenance and investment: Complements or substitutes? A reappraisal," Journal of Economic Dynamics and Control, Elsevier, vol. 34(12), pages 2420-2439, December.
  8. Canova, Fabio & Gambetti, Luca & Pappa, Evi, 2006. "The Structural Dynamics of Output Growth and Inflation: Some International Evidence," CEPR Discussion Papers 5878, C.E.P.R. Discussion Papers.
  9. BOUCEKKINE, Raouf & RUIZ-TAMARIT Ramon, 2001. "Capital Maintenance and Investment : Complements or Substitutes ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  10. Schworm, William E., 1979. "Tax policy, capital use, and investment incentives," Journal of Public Economics, Elsevier, vol. 12(2), pages 191-204, October.
  11. Christopher Erceg & Luca Guerrieri & Christopher Gust, 2004. "Can long-run restrictions identify technology shocks?," International Finance Discussion Papers 792, Board of Governors of the Federal Reserve System (U.S.).
  12. Omar LICANDRO & Luis A. PUCH, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annales d'Economie et de Statistique, ENSAE, issue 58, pages 143-164.
  13. 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 402-17, June.
  14. Cagri Saglam & Vladimir M. Veliov, 2008. "Role of Endogenous Vintage Specific Depreciation in the Optimal Behavior of Firms," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(3), pages 381-410.
  15. Epstein, L. & Denny, M., 1980. "Endogenous capital utilization in a short-run production model : Theory and an empiral application," Journal of Econometrics, Elsevier, vol. 12(2), pages 189-207, February.
  16. Prucha, Ingmar R. & Nadiri, M. Ishaq, 1996. "Endogenous capital utilization and productivity measurement in dynamic factor demand models Theory and an application to the U.S. electrical machinery industry," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 343-379.
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