inflation tax rules and the accumulation of residential and nonresidential capital the present paper analyses the effect of the interaction between tax rules and inflation on the size and allocation of the capital stock with particular emphasis on the role of owner occupied housing the analysis is developed in the framework of an economy that is in equilibrium and in which a constant fraction of disposable income is saved in this model i show that with current u s tax laws an increase in the rate of inflation reduces the equilibrium amount of business capital employed in the economy and raises the amount of housing capital the analysis also shows that a higher rate of inflation lowers the real net of tax rate of return to the provider of business capital in a richer model than the current one i e in a model in which the rate of personal saving was an increasing function of the net rate of return a higher inflation rate would therefore lower the rate of saving the present analysis also shows that permitting firms to depreciate investments more rapidly for tax purposes increases the accumulations of business capital but that unless firms are permitted to expense all in vestment immediately an increase in in lat ion continues to depress the accumulation of business capital this abstract was borrowed from another version of this item

taxes housing and capital accumulation in a two sector growing economy abstract it is sometimes argued that the favorable tax treatment afforded to housing may lead to an oversupply of housing at the expense of capital this issue is examined in the context of a growing two sector economy in the basic model where the rate of time preference is constant and labor is instantaneously sectorally mobile the long run response of the capital stock to a tax on housing depends upon the relative capital intensities of the two sectors while the long run relative asset price of housing remains unchanged the robustness of these propositions to changes in the model are considered taxes on capital are also analyzed

corporate taxation and capital accumulation evidence from sectoral panel data for 14 oecd countries abstract we present new empirical evidence that sector level capital output ratios are strongly influenced by corporate tax incentives as summarised by the tax component of a standard user cost of capital measure we use sectoral panel data for the usa japan australia and eleven eu countries over the period 1982 2007 our panel combines internationally consistent data on capital stocks value added and relative prices from the eu klems database with corporate tax measures from the oxford university centre for business taxation our results for equipment investment are particularly robust and strikingly consistent with the basic economic theory of corporate investment

the long run relationship between productivity and capital abstract using panel cointegration techniques we show a cointegrating relationship exists between capital and productivity in 446 manufacturing industries panel dols and fmols estimates reveal that innovations to productivity increase and granger cause capital movements

investment specific technological changes the source of long run tfp fluctuations abstract technological innovations originating in the capital producing sector may spillover to the rest of the economy and enhance aggregate tfp in the long run this paper assesses the quantitative importance of investment specific technological changes in long run movements in aggregate tfp to this end we construct a two sector business cycle model where an ist diffusion process influences long run movements in aggregate tfp via spillover we then establish the linkage between the primitive shocks of the model and two shocks that can be identified from a var approach one shock accounting for the long run movement in aggregate tfp and the other accounting for the long run movement in the inverse of the relative price of investment we show analytically that the correlation of these two long run shocks can be fruitful in distinguishing the quantitative importance of ist innovations in long run movements in aggregate tfp using post war u s data we find that these two long run shocks identified by the mfev approach are almost perfectly collinear moreover these two shocks can explain a significant and surprisingly similar fraction of the business cycle fluctuations in other important macro variables our findings suggest that embodied technological changes are an important driver of long run movements in aggregate tfp

capital accumulation sectoral heterogeneity and the taylor principle abstract in the presence of capital accumulation the taylor principle may not be sufficient for determinacy under reasonable parameter values in this paper i consider a two sector extension of the models used in the existing literature i show that what matters for whether the taylor principle is sufficient is the price stickiness of investment goods price stickiness of consumer goods on the other hand matters very little the taylor principle is sufficient i find unless there is considerable price stickiness in the investment goods sector

productivity growth in goods and services across the heterogeneous states of america i introduction the study of income and productivity convergence and structural transformation are central and recurring themes in economic growth research the u s states have been a fertile testing ground for many intellectual advances in these areas the closed economy assumptions of the underlying models notwithstanding the states offer compensating advantages such as being subject to the same macroeconomic policy while simultaneously exhibiting considerable heterogeneity along many dimensions of interest to growth researchers demographics composition of output quality of workforce tax policy natural resource endowments geography etc at the same time knowledge on multifactor productivity mfp growth which is central to many growth models remains sparse for u s states this is mainly due to lack of data on capital accumulation beyond the manufacturing sector this is unfortunate as an emerging body of work has begun to draw attention to the fact that the convergence of state level incomes has slowed down over the past two to three decades in the absence of adequate data at the state level it becomes difficult to further analyze this problem within a multisectoral framework in this study we seek to rectify this shortcoming by constructing and analyzing productivity growth for the broadly defined privately produced goods and service sectors at the state level and undertake both growth accounting and convergence analysis for the period 1980 2007 1 our primary innovation is the use of the dual growth accounting method which relies on factor prices rather than factor stocks to construct mfp growth to get a sense of the underlying heterogeneity in sectoral labor productivity growth consider the convergence plots displayed in figure 1 in figure 1 a we plot labor productivity growth in the nonfarm nonmining private sector between 1980 and 2007 against initial labor productivity there is some evidence of absolute convergence although weak in figures ib and 1c we repeat similar plots but now for the goods sector and for the private service sector separately here we see markedly different patterns while convergence in the goods sector is apparent for services it is quite the opposite moreover if one inspects the values on the vertical axes one can also infer large differences across states this is particularly true for goods where the difference between oregon or and montana mt was almost 7 annually as a result even though montana had slightly higher labor productivity in 1980 by 2007 oregon s productivity was at least five times higher even for the service sector where the range is much smaller the difference between connecticut ct and michigan mi was almost 2 annually as a result though both states began with almost similar values connecticut s labor productivity in services was 60 higher than michigan s by 2007 clearly these are large underlying regional differences these very different patterns motivate some of the questions that we try to answer in this study using our constructed series of mfp growth and its constituent variables we examine the sources of variations in labor productivity growth first we conduct an in depth growth accounting exercise to explore the relative importance of mfp growth versus factor accumulation for the two broad sectors across u s states this allows us to undertake traditional growth accounting exercises and also examine the sources of variations across states as the dual accounting approach relies on the construction of real wage growth and real user cost growth we also investigate the sectoral patterns for these two variables second we conduct convergence analysis at the sectoral level for labor productivity growth mfp growth as well as factor price growth we show that while the goods sector shows convergence both absolute and conditional on initial human capital we see no such evidence for the service sector

inflation capital taxation and housing the long run in a small open economy this paper deals with the consequences of inflation and capital income taxes for the accumulation of wealth in a small open economy with a housing sector particular attention is paid to the incentive and intergenerational redistribution effects stemming from the interaction of inflation and capital income taxation and to portfolio shifts between housing assets and other assets the authors find that the intergenerational distribution effects and the incentive effects on overall savings tend to offset and sometimes even to dominate several of the expected interasset substitution effects of a change in inflation and capital taxes

total factor productivity and the measurement of technological change tfp is interpreted in the literature in different mutually contradictory ways changes in tfp are shown to measure not technological change only the super normal returns to investing in such change returns that exceed the full opportunity cost of the activity thus in the limit technological change can proceed with unchanged tfp measuring the effects of technological change instead requires counterfactual estimates reasons why changes in tfp are imperfect measures of super normal returns are also studied reasons connected with the timing of output responses the treatment of r d in the national accounts the omission of resource inputs and two types of aggregation la productivite totale des facteurs et la mesure du changement technologique la productivite totale des facteurs ptf est interpretee dans la litterature de manieres differentes et mutuellement contradictoires on montre que les changements dans la ptf ne mesurent pas le changement technologique mais seulement les rendements supra normaux sur les investissements dans de tels changements des rendements qui depassent le plein cout d opportunite de cette activite donc a la limite le changement technologique peut proceder sans que la ptf change mesurer les effets du changement technique reclame des evaluations d hypotheses de rechange les raisons pour lesquelles les changements dans la ptf sont des mesures imparfaites des rendements supra normaux sont aussi etudiees raisons connectees avec la reponse des niveaux de production le traitement de la r d dans les comptes nationaux l omission des intrants de ressources et deux types d agregation

exploring the effects of racial preferences on urban housing markets social segregation of residential areas is a fact of life in urban america and its most vivid manifestation is racial segregation extreme patterns of segregation have changed very little in the postwar period for example the index of segregation computed by the taeubers declined only slightly from 85 2 in 1940 to 80 0 in 1970 moreover there continues to be convincing evidence of widespread discrimination against blacks in urban housing markets strongly affecting the availability of housing to them 2 economists have devoted a good deal of thought to the consequences of racial prejudice and discrimination and at least three types of market inefficiencies have been identified first some households pay higher prices per unit of housing service than they would in the absence of prejudice and these higher prices are not necessarily offset in the aggregate by lower prices elsewhere second because of the location attributes associated with dwellings and the limited range over which units can be economically modified prejudice causes some mismatch between desired attributes and those purchased the high incidence of dwelling deficiencies in units occupied by blacks compared to whites in the same economic circumstances is one indication of this phenomenon 3 third premature depreciation and abandonment of some housing results from neighborhood succession patterns

capital skill complementarity sectoral labor productivity and structural transformation abstract in the postwar u s economy labor productivity has been growing faster in the goods sector versus the service sector this paper argues that this sectoral labor productivity growth gap can largely be explained by the fact that capital intensity also increases faster in the goods sector i build a two sector neoclassical growth model in which capital substitutes low skilled labor but complements high skilled labor and the goods sector is more intensive in low skilled labor relative to the service sector as observed in the data as capital becomes more abundant relative to labor along economic growth low skilled labor is substituted by capital leading to faster growth of capital intensity and hence labor productivity in the goods sector using a calibrated model i find that two thirds of the sectoral labor productivity growth gap can be explained by capital accumulation and its interaction with capital skill complementarity

horizons of understanding a review of ray fair s estimating how the macroeconomy works ray fair s estimating how the macroeconomy works is the latest in a series of books by fair that build estimate and apply his macroeconometric model to study the u s economy in this book fair updates the model to incorporate the most recent data and uses it to analyze several important empirical questions such as whether the u s economy moved into a new age of high productivity in the last half of the 1990s and the dynamics of prices output and unemployment this review places his work in the context of the historical evolution of aggregate econometric models compares it with the current developments in the estimation of dynamic stochastic general equilibrium models and discusses some salient aspects of fair s contributions

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

the effects of anticipated inflation on housing market equilibrium an increase in the anticipated rate of inflation causes distortions in the housing market due to a nonindexed tax system since nominal rather than real interest payments are tax deductible an increase in inflation decreases the aftertax cost of capital for homeowners which in turn increases the demand for housing and increases its real price this tax gain is shown to be larger for rental housing than for owner occupied housing in a competitive market this implies that although the real price of housing increases with a rise in anticipated inflation real rental rates fall in the last decade the real price of corporate capital fell while the price of housing increased dramatically during this same period the rate of inflation increased substantially empirical studies have found a negative relationship between stock returns and the inflation rate 1 while housing has been found to have been a good hedge against inflation 2 tax distortions related to the change in the rate of inflation provide one popular explanation for the negative relationship between stock prices and inflation 3 the effect of similar tax induced distortions on the equilibrium in the housing market will be studied in this paper it is shown that the real price of housing increases with the anticipated rate of inflation while the real rental rate declines these results are consistent with published data for the period 1967 77 during which the anticipated rate of inflation increased substantially 4 the general price level as measured by the consumer price index increased 81 5 percent between 1967 and 1977 5 in this

vintage human capital and learning curves abstract i study a vintage human capital model in which long lived workers accumulate human capital following an exogenous learning curve different skill levels inside a vintage are complementary in production this makes the ex ante homogeneous workers enter different vintages the continuous time framework allows me to study the timing decision for the technology phase out differentially and to derive sharp characterization for wages and the distribution of workers in the dying technology i show how to posit and solve a planner s problem and construct equilibrium in this way consistent with empirical evidence i show that the experience premium is always positive but diminishes as a technology ages the connection between workers learning curves and the technology s progress curve is characterized

strategic timing of adoption of new technologies under uncertainty abstract in this paper we introduce experience effects into a duopoly game of timing of adoption of new technologies which exhibit exogenous technological progress departing from the existing literature with this model we obtain continuous and downward sloping reaction functions we find that a higher level of uncertainty increases the extent of dispersion between the equilibrium timings of adoption furthermore we find that the equilibrium timings are even more dispersed when the leader takes the follower s reaction into account when firm roles are made endogenous we find that if there is an incentive to lead follow the equilibrium timings are more less dispersed finally we show that it is possible for collusive adoption to improve welfare

labor and investment frictions in a real business cycle model abstract this paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar us economy using ireland s 2004a a method for taking models to the data journal of economic dynamics and control 28 1205 1226 methodology we establish that both types of friction are quantitatively important technology shocks still explain a substantial fraction of the fluctuations in aggregate output as the baseline real business cycle model predicts formal hypothesis tests suggest that changes in the recurrence of shocks frictions and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980

environmental policy and competitiveness the porter hypothesis and the composition of capital abstract the porter hypothesis suggests a win win situation in the sense that environmental policy improves both environment and competitiveness the suggestion received strong criticism from economists driven by the idea that if opportunities exist firms do not have to be triggered by an extra cost in this paper a model is developed which confirms this point but which also draws attention to some general mechanisms that relax the trade off considerably downsizing and modernization of firms subject to environmental policy will increase average productivity and will have positive effects on the marginal decrease of profits and environmental damage

racial prejudice and residential segregation the yinger model revisited abstract yinger s model of racial prejudice in the housing market is the first rigorous alternative to bailey s early work it is important both because his specification of racial prejudice is intuitively plausible and because it has been adopted in much empirical work but never before been subjected to rigorous theoretical examination however his derivation of equilibrium conditions rests in part on inappropriate analyses that significantly affect his conclusions this paper derives what i regard as the appropriate equilibrium conditions yinger s original finding that the white community has strong incentives to foster seller discrimination against blacks remains strongly supported

labor market volatility in the search and matching model the role of investment specific technology shocks abstract shocks to investment specific technology have been identified as a main source of u s aggregate output volatility in this paper we present a model with frictions in the labor market and explore the contribution of these shocks to the volatility of labor market variables namely unemployment vacancies tightness and the job finding rate thus our paper contributes to a recent body of literature assessing the ability of the search and matching model to account for the large volatility observed in labor market variables to this aim we solve a neoclassical economy with search and matching where neutral and investment specific technologies are subject to shocks the three key features of our model economy are i firms are large in the sense that they employ many workers ii adjusting capital and labor is costly iii wages are the outcome of an intra firm nash bargaining problem between the firm and its workers in our calibrated economy we find that shocks to investment specific technology explain 40 of the observed volatility in u s labor productivity moreover these shocks generate relative volatilities in vacancies and the workers job finding rate which match those observed in u s data relative volatilities in unemployment and labor market tightness are 55 and 75 of their empirical values respectively

vintage human capital growth and the diffusion of new technology we develop a model of vintage human capital in which each technology requires vintage specific skills we examine the properties of a stationary equilibrium for our economy the stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages the distribution is shown to be single peaked under general conditions there is a lag between the appearance of a technology and its peak usage a phenomenon known as diffusion an increase in the rate of exogenous technological change shifts the distribution of human capital to more recent vintages thereby increasing the diffusion rate

the coevolution of the real and financial sectors in the growth process the role of debt and equity changes over time and with the level of development what are these changes and why should they systematically occur across different countries and time periods this article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector it focuses on the emergence and development of equity markets using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity as an economy develops the aggregate ratio of debt to equity will generally fall yet debt and equity remain complementary sources for the financing of capital investments the results suggest how various government policy actions might affect capital accumulation and equity market activity

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

the augmented solow model and the productivity slowdown abstract in an insightful and influential paper mankiw et al 1992 quarterly journal of economics 107 407 437 have suggested that an augmented solow growth model can account for 80 of the variation in output per capita across countries due to different steady state growth paths that result from differences in saving rates education and population growth this paper carries their analysis one step further and asks whether changes in the growth rate between the 1960s and the 1980s can also be explained by this framework our results provide further support for several of mankiw et al s key conclusions investment in physical capital population growth and the initial levels of output seem to matter a great deal however investment in human capital has no ability to account for changes in growth rates over time we conclude that investment in physical capital seems to be quite important for economic growth though the reasons for this importance may not be fully captured by the augmented solow growth model

capital reallocation and liquidity this paper studies the cyclical properties of capital reallocation and the frictions which inhibit such reallocation we show that the amount of capital reallocation and the benefits to reallocation vary at the business cycle frequency the amount of capital reallocation is procyclical in contrast the benefits to capital reallocation appear countercyclical we measure the amount of reallocation using data on flows of capital across firms and the benefits to capital reallocation using several measures of the cross sectional dispersion of the productivity of capital we then study a calibrated model of an economy where capital reallocation is costly and impute the cost of reallocation which is consistent with the amount of and benefits to reallocation in the data we find that the cost of reallocation needs to be substantially countercyclical to be consistent with the observed joint cyclical properties of reallocation and productivity dispersion the cyclical variation in this cost is interpreted as variation in the liquidity of capital broadly defined since physical costs are unlikely to vary countercyclically

a note on growth accounting with vintage capital abstract we show how growth accounting can be performed in the classic vintage capital model of solow solow r 1956 technical change and the aggregate production function review of economics and statistics the growth in real output can be decomposed into the labor share times the growth of labor plus the gross quasi rents on capital times the saving rate we show that data easily obtained from conventional national income accounts can be used to perform this growth accounting

the allocation of capital between residential and nonresidential uses taxes inflation and capital market constraints we have constructed a simple two sector model of the demand for housing and corporate capital economic growth and an increase in the inflation rate were then simulated with a number of model variants the model and simulation experiments illustrate both the tax bias in favor of housing and the manner in which the increase in inflation between 1965 and 1978 magnified it the existence of capital market constraints offsets the bias against corporate capital but it introduces a sharp inefficient reallocation of housing from less wealthy constrained households to wealthy households who do not have gains on mortgages and are not financially constrained

investment specific technological change and growth accounting greenwood et al 1997 long run implications of investment specific technological change american economic review 87 3 342 362 and 2000 the role of investment specific technological change in the business cycle european economic review 44 91 115 and hercowitz 1998 the embodiment controversy a review essay journal of monetary economics 41 217 224 have claimed that the jorgenson form of growth accounting is conceptually flawed and severely understates the importance of technological progress embodied in new capital goods for explaining growth to the contrary this paper shows that in its technology aspects their model is a special case of the jorgensonian growth accounting model what they call investment specific technological change is shown to be closely related to the more familiar concept of total factor productivity tfp growth statements about the one can be translated into statements about the other empirically differences between their conclusions and those of growth accounting studies about the extent to which embodiment explains us economic growth are found to relate more to data than to methodology

urban housing with discrete structures abstract competitive equilibrium in an urban housing model with structures that cannot be readily aggregated or subdivided is analyzed in this paper the price and quantity of services forthcoming from each dwelling occupied by a household is determined by the equality of competitive supply and demand a stack algorithm is then developed to ensure households are assigned to dwellings so that they would not prefer to live in any other dwelling with an equilibrium price less than the one they would pay if they lived there using the urban institute housing model as an example the results of this algorithm are compared with those of the algorithm developed by de leeuw and struyk d s the stack algorithm yields greater price discounting of existing dwellings below the price of a new dwelling than does the d s algorithm and thus a greater potential for housing prices to be increased by a demand subsidy such as a housing allowance

financial integration and growth in a risky world abstract we revisit the debate on the benefits of financial integration in a two country neoclassical growth model with aggregate uncertainty the framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing together with their interaction global numerical methods allow for meaningful welfare comparisons gains from integration are quantitatively small even for riskier and capital scarce emerging economies these countries import capital for efficiency reasons before exporting it for self insurance leading to capital flows and growth reversals along the transition this opens the door to richer empirical implications than previously considered in the literature

vintage capital investment and growth abstract we study the dynamics of growth and investment in a continuous time model with vintage capital vintage capital models may be characterized by non exponential rates of depreciation and technical change and can incorporate gestation lags as well as learning by using we investigate the effect of such features on the dynamics of investment and growth and show how they can contribute to explaining the volatile nature of investment time series

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

the economic crisis from a neoclassical perspective abstract this paper assesses the 2007 2009 recession using neoclassical business cycle theory i find that the 2007 2009 u s recession differs substantially from other postwar u s recessions and also from the 2008 recession in other countries in that lower labor input accounts for virtually all of the decline in income and output in the united states while lower productivity accounts for much of other u s recessions and the 2007 2009 recession in other countries i also find that existing classes of models including financial market imperfections models do not explain the u s recession this is because the 2007 2009 recession is almost exclusively related to what appear to be labor market distortions that drive a wedge between the marginal product of labor and the marginal rate of substitution between consumption and leisure a topic about which current classes of financial imperfection models are largely silent i discuss future avenues for developing this class of models and i consider alterna

skiba points in free end time problems abstract since the end of the seventies skiba points have been studied in infinite time optimal control problems with multiple steady states at such a skiba point the decision maker is indifferent between choosing trajectories that approach different steady states this paper extends this theory towards free end time optimal control problems where the decision maker collects a salvage value at the endogenous horizon date in particular besides operating forever the decision maker can choose to stop operations immediately or to operate during a finite time interval after which the decision maker stops and collects a salvage value this paper illustrates the new theory with a firm level capital accumulation problem in which the manager has the option to sell the firm be acquired at any time this situation may be relevant for certain high tech start ups that create intellectual property which may be of value to an acquiring firm and which is hard for an outside firm to tap in other ways e g via licensing

solving optimal growth models with vintage capital the dynamic programming approach this paper deals with an endogenous growth model with vintage capital and more precisely with the ak model proposed in r boucekkine o licandro l a puch f del rio vintage capital and the dynamics of the ak model j econ theory 120 1 2005 39 72 in endogenous growth models the introduction of vintage capital allows to explain some growth facts but strongly increases the mathematical difficulties so far in this approach the model is studied by the maximum principle here we develop the dynamic programming approach to the same problem by obtaining sharper results and we provide more insight about the economic implications of the model we explicitly find the value function the closed loop formula that relates capital and investment the optimal consumption paths and the long run equilibrium the short run fluctuations of capital and investment and the relations with the standard ak model are analyzed finally the applicability to other models is also discussed

is physical investment the key to china s growth miracle i introduction unprecedented high rates of economic growth in china over the past decades have stimulated a wide interest among researchers and policymakers in establishing whether rapid physical capital accumulation is the main driving force behind such outstanding growth performance and whether it suffices to sustain china s rapid economic growth in the next decades by exploiting the different implications that the relation between investment and growth has according to the neoclassical paradigm pioneered by solow 1956 and cass 1965 and endogenous growth models of the ak type this paper will attempt to test the empirical validity of the ak model for the chinese economy the main difference between the ak model and the solow model is that the former allows for the existence of constant returns to a sufficiently broad definition of capital which in turn enables investment to have a long run impact on growth in contrast under the neoclassical paradigm diminishing returns to reproducible capital leads inevitably to only temporary growth effects along the transitional path and long run growth depends on exogenous technological progress constant returns to reproducible capital characterizing linear accumulation driven models may stem from different sources like 1 positive externalities as in the models of frankel 1962 lucas 1988 and romer 1986 2 bounding the marginal product of reproducible factors away from zero jones and manuelli 1990 or 3 the existence of constant returns to all accumulable factors characterizing the different sectors of the economy barro 1990 rebelo 1991 according to standard linear accumulation driven models steady state output growth directly depends on the total investment rate in physical capital hence the dynamics of output growth should behave similarly to the dynamics of the investment rate as noted by jones 1995a a hallmark of the endogenous growth literature implies that any large permanent change in total investment should translate into a permanent change in long run growth in the same direction jones 1995a constitutes the first attempt at testing the ak type growth models using a time series framework his sample includes 15 organization for economic co operation and development oecd countries with data spanning over the period 1950 1988 he shows that the investment share in producer durables and to a lesser extent the total investment rate presents an upward deterministic trend and is generally found nonstationary when augmented dickey fuller adf 1979 tests are applied in contrast rates of economic growth remain fairly stable jones then claims that the fact that output growth rates exhibit no large permanent movements imposes a strong and testable restriction on endogenous growth models if an endogenous growth model predicts that permanent movements in some variable x have permanent effects on growth then either a x must exhibit no large persistent movements or b some other variable or variables must also have persistent effects on growth that offset the movements of x in a way that is determined by the endogenous growth model jones 1995a 502 despite the considerable effort using this framework to try to test the empirical validity of ak type growth models for the oecd countries jones 1995a li 2002 romero avila 2006 no work has been conducted along these lines for the chinese economy this is surprising because this issue should be particularly important for a country like china which is expected to become the leading economy in the coming decades with a population more than 1 3 billion which is more than four times the population of the united states this paper tries to fill this gap in the literature by applying jones test to the chinese economy over the past five decades the chinese economy has shown spectacular growth performance with an average annual growth rate of real per capita gross domestic product gdp equal to 6

replacement echoes in the vintage capital growth model this paper is concerned with a non standard source of fluctuations called echo effects i e the ability of an economy to reproduce its own past history in the 1960s growth theorists believed that this property could arise in vintage capital models taking the form of replacement echoes this line of research was stopped after the publication of solow et al 15 who showed that echoes should vanish in a solow growth model with vintage capital however the fundamental reason for this result has nothing to do with vintages rather it comes directly from the main assumption in a solow growth model i e at equilibrium investment is a constant fraction of output and does not depend on any optimal replacement rule we claim that in a more general ramsey model replacement echoes do not necessarily vanish and we show this in the case when instantaneous utility is linear c 1997 academic press

capital accumulation under technological progress and learning a vintage capital approach abstract in standard capital accumulation models all capital goods are equally productive and produce goods of the same quality however due to technological progress in reality it holds most of the time that newer capital goods are either more productive process innovation or produce goods of better quality product innovation implications of process innovation for the firm s investment policies are investigated while the output price development is subject to a business cycle and a given generation of capital goods gets more productive over time due to learning the problem is turned into an optimal control model that distinguishes the vintages of capital goods and where unlike most of the recent contributions it is possible to keep on investing in older technologies it is shown that i learning is one of the reasons why a firm may invest in old technologies even when apparently superior technologies are available ii investments in machines of a given age increase more over time under faster technological progress iii under faster technological progress investments are more vulnerable to output price developments and iv on average machines are older during recessions in deciding whether to invest in newer or older capital goods also the lower productivity due to aging versus differences in cost of discounting and acquisition have to be taken into account

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

anticipation effects of technological progress on capital accumulation a vintage capital approach abstract due to embodied technological progress new generations of capital goods are more productive therefore in order to study the effects of technological progress a model must be analyzed in which different generations of capital goods can be distinguished we determine in what way the firm adjusts current investments to predictions of technological progress in the presence of market power we show that a negative anticipation effect occurs i e current investments in recent generations of capital goods decline when faster technological progress will take place in the future because then it becomes more attractive to wait for new generations of capital goods in case that only investments in new machines are possible actually a whole wave of anticipation phases arises

learning adaptive expectations and technology shocks this study explores the macroeconomic implications of adaptive expectations in a standard growth model we show that the self confirming equilibrium under adaptive expectations is the same as the steady state rational expectations equilibrium for all admissible parameter values but that dynamics around the steady state are substantially different between the two equilibria the differences are driven mainly by the dampened wealth effect and the strengthened intertemporal substitution effect not by escapes emphasised by williams 2003 consequently adaptive expectations can be an important source of frictions that amplify and propagate technology shocks and seem promising for generating plausible labour market dynamics

stability and limit cycles in competitive equilibria subject to adjustment costs and dynamic spillovers abstract this paper derives conditions for hopf bifurcations in a general class of competitive equilibria where individual actions i lead to a dynamic spillover or an externality that is found e g in environmental economics and in the endogenous growth literature and ii these actions can be only sluggishly adjusted it turns out that only one and particularly simple to check condition allows for a hopf bifurcation in both instances of perfect foresight and myopic expectations growth of the spillover at the steady state in fact this condition ensures the existence of a bifurcation if the adjustment costs are sufficiently convex

can natural disasters have positive consequences investigating the role of embodied technical change it has been suggested that disasters might have positive economic consequences through the accelerated replacement of capital this possibility is referred to as the productivity effect this effect is investigated using a model with embodied technical change in this framework disasters can influence the production level but cannot influence the growth rate in the same way than the saving ratio in a solow like model depending on reconstruction quality indeed accounting for embodied technical change can either decrease or increase disaster costs but is never able to turn disasters into positive events moreover a better but slower reconstruction amplifies the short term consequences of disasters but pays off over the long term regardless the productivity effect cannot prevent the existence of a bifurcation when disaster damages exceed the reconstruction capacity potentially leading to poverty traps c 2008 elsevier b v all rights reserved

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

inflation taxes and housing a theoretical analysis abstract this paper examines the real effects of inflation under a distortionary tax system the presence of a tax subsidy to housing substantially alters the effects of inflation on the capital intensity of production and on the market interest rate the analysis suggests that not taxing the flow of services from housing has caused inflation to reduce capital intensity thereby decreasing u s productivity furthermore this tax subsidy has caused inflation to raise the real interest rate while reducing the after tax real returns to assets

human capital prices productivity and growth separate identification of the price and quantity of human capital has important implications for understanding key issues in labor economics and macroeconomics price and quantity series are derived and subjected to robustness checks the human capital price series associated with dierent education levels are highly correlated and exhibit a strong secular trend three result

what drives the skill premium technological change or demographic variation abstract this paper quantitatively examines the effects of two exogenous driving forces investment specific technological change istc and the demographic change known as the baby boom and the baby bust on the evolution of the skill premium and the college enrollment rate in the postwar u s economy we develop a general equilibrium overlapping generations model with endogenous discrete schooling choice the production technology features capital skill complementarity as in krusell et al 2000 istc through capital skill complementarity raises the relative demand for skilled labor while demographic variation affects the skill premium by changing the age structure and hence the relative supply of skilled labor we find that istc is the key element driving the skill premium in the postwar u s economy and it is quantitatively important for the dynamics of the college enrollment rate the quantitative importance of the demographic change for the evolution of both the skill premium and the college enrollment rate however is limited

volatility and slow technology diffusion abstract i study the effects of uncertainty on technology adoption and thereby on volatility and growth i present an analytically tractable model in which i uncertainty about the returns to adoption delays technology diffusion and ii the mean and volatility of output growth are jointly determined in equilibrium i then test the key predictions of the model by studying the introduction of three major information and communication technologies icts computers internet and cell phones i find that countries with more volatile growth rates of real gdp per capita have higher time adoption lags and lower average growth as predicted by the model

on the fit of new keynesian models this article provides new tools for the evaluation of dynamic stochastic general equilibrium dsge models and applies them to a large scale new keynesian model we approximate the dsge model by a vector autoregression and then systematically relax the implied cross equation restrictions and document how the model fit changes we also compare the dsge model s impulse responses to structural shocks with those obtained after relaxing its restrictions we find that the degree of misspecification in this large scale dsge model is no longer so large as to prevent its use in day to day policy analysis yet is not small enough to be ignored

the economic determinants of technology shocks in a real business cycle model abstract creative destruction due to new technologies causes both long run growth and short run business fluctuations new technologies push the economy on a higher productivity level but also imply partial obsolescence of old production units obsolescence induces an adjustment period during which growth rates gradually fall at some endogenously determined point research for the next technology starts once the new technology is discovered a technology shock occurs and the next cycle starts this is shown in a continuous time rbc model with risk averse agents where savings can be used for financing deterministic capital accumulation and stochastic r d for new technologies

fiscal policy and asset prices with incomplete markets we study the simultaneous impact of fiscal policy decisions on macroeconomic activity wealth distribution and asset prices we consider a general equilibrium overlapping generations model with incomplete markets and heterogeneous agents where government debt and capital are imperfect substitutes increases in public debt lead to significant increases in the riskless rate and to a reduction in the equity premium while higher capital income tax rates lead to a higher equity premium the crowding out effects on capital and output are much higher than in models where government debt and capital are perfect substitutes which thus ignore households portfolio reallocation decisions the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

aggregate fluctuations and the industry structure of the us economy abstract in a two sector economy changes in intermediate input trade as reflected in cost share fluctuations are key to determining the amplification properties of investment specific and neutral shocks i document that the cost shares of intermediate inputs produced by the investment sector correlate positively with gdp whereas those of inputs produced by the consumption sector correlate negatively with gdp the two sector model of greenwood et al 1988 is extended to allow for trade of intermediate goods and to show that the documented correlations discipline heterogeneous elasticities of substitution in intermediate inputs across sectors shock amplification that is the effect of a sectorial shock on aggregate value added depends on the degree of heterogeneity in these elasticities of substitution for a calibrated economy to that of the united states i find that shock amplification is stronger than in a unitary elasticity economy it is also stronger than in an economy with a common non unitary elasticity that is either inferred from data via reduced form estimates or calibrated to match the same targets as our benchmark economy

differential difference equations in economics on the numerical solution of vintage capital growth models we examine techniques for the analytical and numerical solution of state dependent differential difference equations such equations occur in the continuous time modelling of vintage capital growth models which form an important class of models in modern economic growth theory the theoretical treatment of non state dependent differential difference equations in economics was discussed by benhabib and rustichini 1991 in general though the state dependence of a model prevents its analytical solution in all but the simplest of cases we review a numerical method for solving state dependent models using simple examples to illustrate our discussion in addition we apply this numerical method to the solow vintage capital growth model

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

skill biased technological change and the business cycle over the past two decades technological progress in the united states has been biased towards skilled labor what does this imply for business cycles we construct a quarterly skill premium from the cps and use it to identify skill biased technology shocks in a var with long run restrictions hours fall in response to skill biased technology shocks indicating that at least part of the technology induced fall in total hours is due to a compositional shift in labor demand investment specific technology shocks reduce the skill premium indicating that capital and skill are not complementary in aggregate production

endogenous vs exogenously driven fluctuations in vintage capital models in this paper we present a particular case of the creative destruction model of caballero and hammour quart j econ 111 1996 805 851 in which both exogenous and endogenous fluctuation sources are present we show that job creation follows a delayed differential equation with periodic coefficients the delay is equal to the optimal age of capital goods the period of the coefficients is equal to the period of an exogenous profitability cycle we mathematically show that job creation is asymptotically periodic with the same period as the profitability cycle furthermore using an explicit numerical method we find that replacement echoes generally dominate the short run dynamics finally we find that the combination of the two fluctuations sources favors the appearance of asymmetries in job creation and job destruction patterns

environmental policy the porter hypothesis and the composition of capital effects of learning and technological progress abstract in this paper the effect of environmental policy on the composition of capital is investigated by allowing for nonlinearities it generalizes xepapadeas and de zeeuw j environ econ manage 37 1999 165 and determines scenarios in which their results do not carry over in particular we show that the way acquisition cost of investment decreases with the age of the capital stock is of crucial importance we also focus more explicitly on learning and technological progress among others we obtain that in the presence of learning implementing a stricter environmental policy with the aim to reach a certain target of emissions reduction has a stronger negative effect on industry profits which implies quite the opposite as to what is described by the porter hypothesis