Intangible capital in a real business cycle model

Kashif Zaheer Malik, Syed Ali and Ahmed Khalid

Economic Modelling, 2014, vol. 39, issue C, 32-48

Abstract: Recent empirical studies have shown that intangible capital plays an important role in explaining productivity gains that have occurred during the last two decades. By introducing intangible capital in an otherwise standard theoretical real business cycle model, this paper aims to provide a theoretical foundation of the empirical findings. Our results indicate that investment in intangible capital is pro-cyclical. Both transitory as well as permanent productivity shocks increase investment in intangible capital. However, in case of a permanent technology shock we learn that firms allocate more labor and physical capital to the creation of intangible capital which increases future profits at the cost of current profit. We also find that investment in intangible capital plays an important role in producing endogenous movements in productivity.

Keywords: Intangible capital; Real business cycle; Productivity shocks (search for similar items in EconPapers)
JEL-codes: E32 E37 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:39:y:2014:i:c:p:32-48

DOI: 10.1016/j.econmod.2014.02.018

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