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Cyclical Implications of the Variable Utilization of Physical and Human Capital

  • David N. DeJong

    (Univ of Pittsburgh)

  • Beth F. Ingram

    (Univ of Iowa)

  • Yi Wen

    (Hong Kong Univ of Sci and Tech)

  • Charles H. Whiteman

    (Univ of Iowa)

We develop a business cycle model in which consumption goods, physical capital, and human capital are produced in separate sectors. An important feature of the model is that human and machine inputs in the production process are treated symmetrically: each has both a stock and flow component. The model's representative agent is permitted to use the stocks (physical and human capital) at less than capacity by varying the utilization rate of capital and the hours of labor devoted to production. Utilizing physical capital at less than capacity slows depreciation; utilizing human capital at less than capacity frees time that may be devoted to study, resulting in more rapid human capital accumulation. We find that the model nicely characterizes cyclical properties of U.S. data on output, investment, consumption and employment, particularly at business-cycle frequencies.

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Paper provided by EconWPA in its series Macroeconomics with number 9609004.

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Length: 19 pages
Date of creation: 16 Sep 1996
Date of revision:
Handle: RePEc:wpa:wuwpma:9609004
Note: Zipped using PKZIP v2.04, encoded using UUENCODE v5.15. Zipped file includes 2 files -- ui9612.wpa (Body in Word 6.0-19 pages; Figures in WordPerfect 6.0-7 pages)
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  1. 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.
  2. Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
  3. David N. DeJong & Beth F. Ingram & Charles H. Whiteman, 2000. "Keynesian impulses versus Solow residuals: identifying sources of business cycle fluctuations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(3), pages 311-329.
  4. Perli, Roberto & Sakellaris, Plutarchos, 1998. "Human capital formation and business cycle persistence," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 67-92, June.
  5. Mary G. Finn, 1991. "Energy price shocks, capacity utilization and business cycle fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 50, Federal Reserve Bank of Minneapolis.
  6. Jacob Mincer, 1989. "Job Training: Costs, Returns, and Wage Profiles," NBER Working Papers 3208, National Bureau of Economic Research, Inc.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Rotemberg, Julio J & Woodford, Michael, 1996. "Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 86(1), pages 71-89, March.
  9. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
  10. Hercowitz, Z., 1992. "Macroeconomic Implication of Investment-Specific Technological Change," Papers 13-92, Tel Aviv - the Sackler Institute of Economic Studies.
  11. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-74, December.
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