Intangible Cycles

Shalini Mitra and Gareth Liu-Evans

No 202302, Working Papers from University of Liverpool, Department of Economics

Abstract: What is the role of an intangible investment technology shock in driving and propagating business cycles? We show that the ability of entrepreneurs to reallocatephysical investment across (final goods and intangible investment) sectors within the firm, in response to such a shock, is key to quantitatively generating volatility and comovement among macroeconomic aggregates at business cycle frequencies. Such a channel is consistent with observed within-firm procyclical investment dispersion in the data and does not arise in the case of household ownership of intangible-capitalaccumulating firms. Moreover, the unmeasured nature of intangible investments and the hump-shaped response of final goods implies that there is an almost zero correlation of the positive intangible investment shock to measured aggregate total factor productivity.

Keywords: Intangible investment shock; reallocation; intangible capital; business cycles; comovement; investment dispersion (search for similar items in EconPapers)
JEL-codes: E13 E22 E32 O33 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2023, Revised 2023-05
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Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:202302

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