Capital Reallocation and Aggregate Productivity
NBER Working Paper No. 19715
This paper studies the productivity implications of the cyclical reallocation of capital. Frictions in the reallocation process are a source of factor misallocation. Cyclical movements in these frictions lead to variations in the degree of reallocation and thus in productivity. These frictions also impact the capital accumulation decision. The effects are quantitatively important in the presence of fluctuations in adjustment frictions and/or the cross sectional variation of profitability shocks. These fluctuations depend on the joint distribution of capital and plant-level productivity rather than mean values alone. Even without aggregate productivity shocks, the model has quantitative properties that resemble those of a standard stochastic growth model: (i) persistent shocks to the Solow residual, (ii) positive comovement of output, investment and consumption and (iii) consumption smoothing.
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This paper was revised on May 14, 2014
Document Object Identifier (DOI): 10.3386/w19715
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