Capital Reallocation and the Cyclicality of Aggregate Productivity

Russell W. Cooper and Immo Schott

No 19715, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A large part of the existing stock of capital is frequently reallocated between firms. This capital reallocation is procyclical and leads to variations in measured aggregate productivity. In this paper we ask how much of the cyclical variation in measured productivity is the consequence of capital reallocation. We study a heterogeneous-firm model that generates both realistic amounts of capital reallocation, as well as the observed relationship between the intensive and extensive margins of reallocation. We investigate the effects of exogenous shocks to total factor productivity (TFP) and to the costs of reallocation. These shocks induce changes in the amount of capital reallocation and thus cause an endogenous cyclicality of measured aggregate productivity. We find that only a model driven by exogenous TFP shocks is able to generate both data-consistent cyclical movements in reallocation and sizeable variations in measured aggregate productivity.

JEL-codes: D24 E2 E22 E32 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-mac
Note: EFG
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Citations: View citations in EconPapers (13)

Published as Russell W. Cooper & Immo Schott, 2023. "Capital reallocation and the cyclicality of aggregate productivity," Quantitative Economics, Econometric Society, vol. 14(4), pages 1337-1365, November.

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Journal Article: Capital reallocation and the cyclicality of aggregate productivity (2023)
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