Endogenous capital depreciation and technology shocks

Deli, Y. D. (2016) Endogenous capital depreciation and technology shocks. Journal of International Money and Finance, 69, pp. 318-338. (doi: 10.1016/j.jimonfin.2016.09.004)

Abstract

I examine the dynamic impact of capital maintenance on key aggregates through the depreciation rate. I find that two factors are crucial for the short-run effects of Total Factor Productivity and Investment-Specific shocks: (i) the marginal efficiency of maintenance and its connection with the rate of utilization, and (ii) the interplay between the intertemporal effect of maintenance and the substitution effect between maintenance and utilization. The latter is expressed by the relative size of the elasticity of maintenance to the Hicksian elasticity of complementarity between maintenance and utilization. These theoretical results suggest that to match the observed responses of the macroeconomic aggregates the sign of the cross derivative should be negative and that the relative size of the Hicksian elasticity should be smaller than the maintenance elasticity of marginal depreciation. Finally, the model suggests that the main macroeconomic aggregates react procyclically, with the exception of maintenance, the behavior of which depends on the type of the shock.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Deli, Yota
• Authors: Deli, Y. D.
• Subjects: H Social Sciences > HB Economic Theory
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Journal of International Money and Finance
• Publisher: Elsevier
• ISSN: 0261-5606
• ISSN (Online): 1873-0639
• Published Online: 17 October 2016
• Copyright Holders: Copyright © 2016 Elsevier Ltd.
• First Published: First published in Journal of International Money and Finance 69: 318-338
• Publisher Policy: Reproduced in accordance with the publisher copyright policy