Machine Replacement and the Business Cycle: Lumps and Bumps
Russell Cooper, John C. Haltiwanger, and Laura Power
,
4
(
89
)
American Economic Review
921-946
September
1999
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.