Capital Utilization, Maintenance Costs and the Business Cycle

Omar Licandro () and Luis A. Puch ()

Annales d'Economie et de Statistique, 2000, issue 58, pages 143-164

Abstract: In this paper, we analyze the role played by capacity utilization and maintenance costs in the propagation of aggregate fluctuations. To this purpose we use an extension of the general equilibrium stochastic growth model that incorporates a depreciation technology depending upon both capital utilization and maintenance costs. In addition, we argue that maintenance activity must be countercyclical, because it is cheaper for the firm to repair and maintain machines when they are stopped than when they are being used. We show that the propatation mechanism associated with our technology assumption is quantitatively important: the countercyclicality of maintenance costs contributes significantly to the magnification and persistence of technology shocks.

Date: 2000
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Working Paper: Capital utilization: maintenance costs and the business cycle
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Persistent link: http://EconPapers.repec.org/RePEc:adr:anecst:y:2000:i:58:p:05

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