Machine replacement and the business cycle: Lumps and bumps

Russell Cooper, John Haltiwanger, Laura Power

Research output: Contribution to journalArticle

157 Citations (Scopus)

Abstract

This paper explores investment fluctuations due to discrete changes in a plant's capital stock. The resulting aggregate investment dynamics are surprisingly rich, reflecting the interaction between a replacement cycle, the cross-sectional distribution of the age of the capital stock, and an aggregate shock. Using plant-level data, lumpy investment is procyclical and more likely for older capital. Further, the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well. However, ignoring fluctuations in the cross-sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment.

Original languageEnglish (US)
Pages (from-to)921-946
Number of pages26
JournalAmerican Economic Review
Volume89
Issue number4
DOIs
StatePublished - Sep 1999

Fingerprint

Business cycles
Replacement
Aggregate investment
Capital stock
Fluctuations
Lumpy investment
Interaction
Neglect

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Cooper, Russell ; Haltiwanger, John ; Power, Laura. / Machine replacement and the business cycle : Lumps and bumps. In: American Economic Review. 1999 ; Vol. 89, No. 4. pp. 921-946.
@article{6fb09f449e1b4084aaaca1878a565a15,
title = "Machine replacement and the business cycle: Lumps and bumps",
abstract = "This paper explores investment fluctuations due to discrete changes in a plant's capital stock. The resulting aggregate investment dynamics are surprisingly rich, reflecting the interaction between a replacement cycle, the cross-sectional distribution of the age of the capital stock, and an aggregate shock. Using plant-level data, lumpy investment is procyclical and more likely for older capital. Further, the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well. However, ignoring fluctuations in the cross-sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment.",
author = "Russell Cooper and John Haltiwanger and Laura Power",
year = "1999",
month = "9",
doi = "10.1257/aer.89.4.921",
language = "English (US)",
volume = "89",
pages = "921--946",
journal = "American Economic Review",
issn = "0002-8282",
publisher = "American Economic Association",
number = "4",

}

Machine replacement and the business cycle : Lumps and bumps. / Cooper, Russell; Haltiwanger, John; Power, Laura.

In: American Economic Review, Vol. 89, No. 4, 09.1999, p. 921-946.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Machine replacement and the business cycle

T2 - Lumps and bumps

AU - Cooper, Russell

AU - Haltiwanger, John

AU - Power, Laura

PY - 1999/9

Y1 - 1999/9

N2 - This paper explores investment fluctuations due to discrete changes in a plant's capital stock. The resulting aggregate investment dynamics are surprisingly rich, reflecting the interaction between a replacement cycle, the cross-sectional distribution of the age of the capital stock, and an aggregate shock. Using plant-level data, lumpy investment is procyclical and more likely for older capital. Further, the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well. However, ignoring fluctuations in the cross-sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment.

AB - This paper explores investment fluctuations due to discrete changes in a plant's capital stock. The resulting aggregate investment dynamics are surprisingly rich, reflecting the interaction between a replacement cycle, the cross-sectional distribution of the age of the capital stock, and an aggregate shock. Using plant-level data, lumpy investment is procyclical and more likely for older capital. Further, the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well. However, ignoring fluctuations in the cross-sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment.

UR - http://www.scopus.com/inward/record.url?scp=0000096937&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0000096937&partnerID=8YFLogxK

U2 - 10.1257/aer.89.4.921

DO - 10.1257/aer.89.4.921

M3 - Article

AN - SCOPUS:0000096937

VL - 89

SP - 921

EP - 946

JO - American Economic Review

JF - American Economic Review

SN - 0002-8282

IS - 4

ER -