Working Paper: NBER ID: w25085
Authors: Andrea L. Eisfeldt; Yu Shi
Abstract: Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical, or even countercyclical. This paper reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of capital reallocation stylized facts for the US, and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions, and on resource misallocation and aggregate productivity. Throughout, we provide directions for future research.
Keywords: capital reallocation; business cycles; financial frictions; aggregate productivity; misallocation
JEL Codes: E13; E22; E3; E32; E44; G31; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital reallocation (E22) | GDP (E20) |
| GDP (E20) | Capital reallocation (E22) |
| Capital reallocation (E22) | Productivity dispersion (D29) |
| Financial frictions (G19) | Capital reallocation (E22) |
| Capital reallocation (E22) | Output losses in recessions (E32) |
| Productivity dispersion (D29) | Capital reallocation (E22) |