Capital over the business cycle: renting versus ownership

Peter Gal and Gabor Pinter

No 478, Bank of England working papers from Bank of England

Abstract: We find that capital renting makes up one fifth of US capital expenditures, and it increases during downturns. Further, we present cross-country evidence that output losses after financial crises are smaller where renting is more prevalent. To understand these findings, we build a general equilibrium model with borrowing constraints and with the option to rent or buy capital. The countercyclicality of rentals occurs because their supply increases, as renting serves as an additional means of savings when credit markets malfunction. Moreover, demand also shifts towards rentals as they become relatively cheaper. By absorbing excess savings, renting mitigates financial crises.

Keywords: Renting; capital; business cycle; financial shocks (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 G01 G32 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2013-08-16
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... versus-ownership.pdf Full text (application/pdf)

Related works:
Journal Article: Capital over the Business Cycle: Renting versus Ownership (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0478

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().