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Intangible Cycles

Author

Listed:
  • Shalini Mitra
  • Gareth Liu-Evans

Abstract

What is the role of an intangible investment technology shock in driving and propagating business cycles? We show that the ability of entrepreneurs to reallocatephysical investment across (final goods and intangible investment) sectors within the firm, in response to such a shock, is key to quantitatively generating volatility and comovement among macroeconomic aggregates at business cycle frequencies. Such a channel is consistent with observed within-firm procyclical investment dispersion in the data and does not arise in the case of household ownership of intangible-capitalaccumulating firms. Moreover, the unmeasured nature of intangible investments and the hump-shaped response of final goods implies that there is an almost zero correlation of the positive intangible investment shock to measured aggregate total factor productivity.

Suggested Citation

  • Shalini Mitra & Gareth Liu-Evans, 2023. "Intangible Cycles," Working Papers 202302, University of Liverpool, Department of Economics, revised May 2023.
    • Handle: RePEc:liv:livedp:202302
    as

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    File URL: https://www.liverpool.ac.uk/media/livacuk/schoolofmanagement/docs/ECON,WP,2023-2,Mitra.pdf
    File Function: First version, 2021
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    References listed on IDEAS

    as
    1. Francisco J. Buera & Benjamin Moll, 2015. "Aggregate Implications of a Credit Crunch: The Importance of Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 1-42, July.
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    More about this item

    Keywords

    Intangible investment shock; reallocation; intangible capital; business cycles; comovement; investment dispersion;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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