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American Economic Review: Vol. 89 No. 4 (September 1999)
AER Volume. 89, Issue 4 | 
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Machine Replacement and the Business Cycle: Lumps and Bumps
Article Citation
Cooper, Russell,
John Haltiwanger, and
Laura Power. 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps."
American Economic Review,
89(4): 921-946.
DOI: 10.1257/aer.89.4.921
DOI: 10.1257/aer.89.4.921
Abstract
This paper explores investment fluctuations due to discrete changes in a plant's capital stock. The resulting aggregate investment dynamics are surprisingly rich, reflecting the interaction between a replacement cycle, the cross-sectional distribution of the age of the capital stock, and an aggregate shock. Using plant-level data, lumpy investment is procyclical and more likely for older capital. Further, the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well. However, ignoring fluctuations in the cross-sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment.
Article Full-Text Access
Full-text Article
Authors
Cooper, Russell (Boston U)
Haltiwanger, John (U MD)
Power, Laura (US Dept of the Treasury)
Haltiwanger, John (U MD)
Power, Laura (US Dept of the Treasury)
JEL Classifications
E32: Business Fluctuations; Cycles
E22: Capital; Investment; Capacity
E22: Capital; Investment; Capacity
