Working Paper: NBER ID: w19715
Authors: 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.
Keywords: Capital Reallocation; Aggregate Productivity; Cyclicality; Total Factor Productivity
JEL Codes: D24; E2; E22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| TFP shocks (F16) | capital reallocation (F16) |
| capital reallocation (F16) | measured aggregate productivity (O47) |
| TFP shocks (F16) | measured aggregate productivity (O47) |
| capital reallocation (F16) | Solow residual (O41) |