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Capital Reallocation and the Cyclicality of Aggregate Productivity

Author

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  • Russell W. Cooper
  • Immo Schott
Abstract
A large part of the existing stock of capital is frequently reallocated between firms. This capital reallocation is procyclical and leads to variations in measured aggregate productivity. In this paper we ask how much of the cyclical variation in measured productivity is the consequence of capital reallocation. We study a heterogeneous-firm model that generates both realistic amounts of capital reallocation, as well as the observed relationship between the intensive and extensive margins of reallocation. We investigate the effects of exogenous shocks to total factor productivity (TFP) and to the costs of reallocation. These shocks induce changes in the amount of capital reallocation and thus cause an endogenous cyclicality of measured aggregate productivity. We find that only a model driven by exogenous TFP shocks is able to generate both data-consistent cyclical movements in reallocation and sizeable variations in measured aggregate productivity.

Suggested Citation

  • Russell W. Cooper & Immo Schott, 2013. "Capital Reallocation and the Cyclicality of Aggregate Productivity," NBER Working Papers 19715, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19715
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    Cited by:

    1. Russell Cooper, 2017. "The Employment and Output Effects of Short-Time Work in Germany," 2017 Meeting Papers 613, Society for Economic Dynamics.
    2. Jensen Christian, 2016. "On the macroeconomic effects of heterogeneous productivity shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 1-23, January.
    3. repec:spo:wpmain:info:hdl:2441/20d1ncsepb9ssq3b3v4s6nbc41 is not listed on IDEAS
    4. Andrea L. Eisfeldt & Yu Shi, 2018. "Capital Reallocation," NBER Working Papers 25085, National Bureau of Economic Research, Inc.
    5. Guerini, Mattia & Napoletano, Mauro & Roventini, Andrea, 2018. "No man is an Island: The impact of heterogeneity and local interactions on macroeconomic dynamics," Economic Modelling, Elsevier, vol. 68(C), pages 82-95.
    6. Wright, Randall & Xiao, Sylvia Xiaolin & Zhu, Yu, 2018. "Frictional capital reallocation I: Ex ante heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 100-116.
    7. repec:hal:spmain:info:hdl:2441/20d1ncsepb9ssq3b3v4s6nbc41 is not listed on IDEAS
    8. repec:spo:wpmain:info:hdl:2441/28ldm6et9r9pbak4qpf3imo9bj is not listed on IDEAS
    9. Randall Wright & Sylvia Xiao & Yu Zhu, 2020. "Frictional Capital Reallocation with Ex Post Heterogeneity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 227-253, August.
    10. Randall Wright & Xiaolin Xiao & Yu Zhu, 2018. "Frictional Capital Reallocation II: Ex Post Heterogeneity," 2018 Meeting Papers 544, Society for Economic Dynamics.
    11. repec:hal:spmain:info:hdl:2441/28ldm6et9r9pbak4qpf3imo9bj is not listed on IDEAS

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • 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

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