The Return to Capital and the Business Cycle

Paul Gomme (), B Ravikumar () and Peter Rupert ()

No 08-07, University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: We measure the return to capital directly from the NIPA and BEA data and examine the return implications of the real business cycle model. We construct a quarterly time series of the after-tax return to business capital. Its volatility is considerably smaller than that of S&P 500 returns. The standard business cycle model captures almost 50% of the volatility in the return to capital (relative to the volatility of output). We consider several departures from the benchmark model; the most promising is one with stochastic taxes which captures nearly 80% of the relative volatility in the return to capital.

Keywords: return to capital; volatility; real business cycles (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2007-05-01
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Related works:
Working Paper: The Return to Capital and the Business Cycle (2008)
Working Paper: The return to capital and the business cycle (2006)
Working Paper: The Return to Capital and the Business Cycle (2006)
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