Intangible Capital and Measured Productivity

Ellen McGrattan

Review of Economic Dynamics, 2020, vol. 37 Supplement 1, S147-S166

Abstract: Because firms invest heavily in R&D, software, brands, and other intangible assets—at a rate close to that of tangible assets—changes in measured GDP, which does not include all intangible investments, understate the actual changes in total output. If changes in the labor input are more precisely measured, then it is possible to observe little change in measured total factor productivity (TFP) coincidentally with large changes in hours and investment. This mismeasurement leaves business cycle modelers with large and unexplained labor wedges accounting for most of the fluctuations in aggregate data. To address this issue, I incorporate intangible investments into a multi-sector general equilibrium model and use data from an updated U.S. input and output table to parameterize income and cost shares, with intangible investments reassigned from intermediate to final uses. I employ maximum-likelihood methods and quarterly observations on sectoral gross outputs for the United States to estimate processes for latent sectoral TFPs that have common and sector-specific components. I do not use aggregate hours to estimate TFPs, but find that the predicted hours series compares closely with the actual series and accounts for roughly two-thirds of its standard deviation. I find that sector-specific shocks and industry linkages play an important role in accounting for fluctuations and comovements in aggregate and industry-level U.S. data, and I find that at business-cycle frequencies, the model's common component of TFP is not correlated with the standard measures of aggregate TFP used in the macroeconomic literature. Adding financial frictions and stochastic shocks to financing constraints has a negligible impact on the results. (Copyright: Elsevier)

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2020.06.007
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Intangible Capital and Measured Productivity" (2020)
Working Paper: Intangible Capital and Measured Productivity (2017)
Working Paper: Intangible Capital and Measured Productivity (2017)
Working Paper: Intangible Capital and Measured Productivity (2016)
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:red:issued:20-182

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2020.06.007

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().