Intangible capital and measured productivity

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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 GDP, which does not include all intangible investments, understate the actual changes in total output. If labor inputs 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. The output 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.

Original languageEnglish (US)
Pages (from-to)S147-S166
JournalReview of Economic Dynamics
Volume37
DOIs
StatePublished - Aug 2020

Bibliographical note

Funding Information:
This work has been funded by the National Science Foundation under grant #1657891. I thank David Andolfatto, Andy Atkeson, Anmol Bhandari, Tom Cooley, Max Croce, Sebastian Di Tella, Fatih Guvenen, Jonathan Heathcote, Kyle Herkenhoff, Berthold Herrendorf, Ayse Imrohoroglu, Loukas Karabarbounis, Finn Kydland, Albert Marcet, Juan Pablo Nicolini, Monika Piazzesi, Ed Prescott, Vincenzo Quadrini, Erwan Quintin, Peter Rupert, Raul Santaeulalia-Llopis, Martin Schneider, Pedro Teles, Chris Tonetti, Yuichiro Waki; and seminar participants at the Bank of Portugal, Carnegie Mellon, the Federal Reserve Bank of Minneapolis, the Federal Reserve Bank of St. Louis, Sciences Po, Stanford, the Universitat Autonoma de Barcelona, and the University of Queensland for helpful comments. I thank James Holt for editorial assistance. Materials for replication of all results are available at https://users.econ.umn.edu/~erm. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

Funding Information:
This work has been funded by the National Science Foundation under grant # 1657891 . I thank David Andolfatto, Andy Atkeson, Anmol Bhandari, Tom Cooley, Max Croce, Sebastian Di Tella, Fatih Guvenen, Jonathan Heathcote, Kyle Herkenhoff, Berthold Herrendorf, Ayse Imrohoroglu, Loukas Karabarbounis, Finn Kydland, Albert Marcet, Juan Pablo Nicolini, Monika Piazzesi, Ed Prescott, Vincenzo Quadrini, Erwan Quintin, Peter Rupert, Raul Santaeulalia-Llopis, Martin Schneider, Pedro Teles, Chris Tonetti, Yuichiro Waki; and seminar participants at the Bank of Portugal, Carnegie Mellon, the Federal Reserve Bank of Minneapolis, the Federal Reserve Bank of St. Louis, Sciences Po, Stanford, the Universitat Autonoma de Barcelona, and the University of Queensland for helpful comments. I thank James Holt for editorial assistance. Materials for replication of all results are available at https://users.econ.umn.edu/~erm . The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

Publisher Copyright:
© 2020 Elsevier Inc.

Keywords

  • Business cycles
  • Input-output linkages
  • Intangible investments
  • Total factor productivity

Fingerprint

Dive into the research topics of 'Intangible capital and measured productivity'. Together they form a unique fingerprint.

Cite this