Capital utilization: maintenance costs and the business cycle

Omar Licandro () and Luis Puch

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

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 both upon capital utilization (depreciation in use assumption) and maintenance costs. In addition, we argue that the maintenance activity must be countercyclical, because it is cheaper for the firm to repair and maintain machines when they are stopped than when machines are being employed. We show that the propagation mechanism associated to our technology assumption is quantitatively important: the countercyclicality of maintenance costs contributes significantly to magnify and propagate aggregate fluctuations.

Keywords: Business; Cycles; Capital; Utilization; Maintenance; Costs; Endogenous; Depreciation (search for similar items in EconPapers)
Date: 1995-09
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Citations: View citations in EconPapers (33)

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Journal Article: Capital Utilization, Maintenance Costs and the Business Cycle (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:3917

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