We develop an equilibrium business cycle model in which the producers of final goods pursue generalized (S,s) inventory policies with respect to intermediate goods, a consequence of nonconvex factor adjustment costs. Calibrating our model to reproduce the average inventory-to-sales ratio in postwar U.S. data, we find that it explains over half of the cyclical variability of inventory investment...

We search for useful models of aggregate fluctuations with inventories. We focus exclusively on dynamic stochastic general equilibrium models that endogenously give rise to inventory investment and evaluate two leading candidates: the (S,s) model and the stockout avoidance model. Each model is examined under both technology shocks and preference shocks, and its performance gauged by its ability...

Conventional wisdom has it that inventory investment destabilizes the economy because it is procyclical to sales. Khan and Thomas (2007) show that the conventional wisdom is wrong in a general equilibrium (S,s) model with capital. We argue that their …nding is not robust— the conventional wisdom can still hold in general equilibrium if …rms can adjust output by varying the capacity utilization ...

This paper explores the hypothesis that the rise in intangible capital is a fundamental driver of the secular trend in US corporate cash holdings over the last decades. Using a new measure, we show that intangible capital is the most important firm-level determinant of corporate cash holdings. Our measure accounts for almost as much of the secular increase in cash since the 1980s as all other d...

Capital Deepening and Wage Differentials: Germany vs. US Capital deepening may affect the evolution of the wage differential between skilled and unskilled workers differently in countries with different labor market institutions. If labor market institutions raise the relative wage of unskilled workers in Germany, firms have incentives to invest relatively more into capital equipment complement...

This paper deals with an endogenous growth model with vintage capital and, more precisely, with the AK model proposed in [R. Boucekkine, O. Licandro, L.A. Puch, F. del Rio, Vintage capital and the dynamics of the AK model, J. Econ. Theory 120 (1) (2005) 39–72]. In endogenous growth models the introduction of vintage capital allows to explain some growth facts but strongly increases the mathemat...

In this paper we show that firms’ market power and flexibility in the utilization of capital crucially affect how investment-specific technology (IST) shocks impact asset prices. We develop a two-sector general equilibrium model in which households have recursive preferences and obtain three main results. First, the equilibrium price of risk for IST shocks changes sign from negative, under fixe...

Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain’s borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricult...

According to conventional economic wisdom, capital income taxes should be low. The purpose of this paper is to cast doubt on this general conclusion and to show theft theory can also point in the opposite direction. The paper shows that under rather mild conditions, higher capital income taxes lead to faster growth in an overlapping generations economy with endogenous growth. Government expendi...

We solve equilibrium models of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity. Nonconvex adjustment costs lead plants to pursue generalized (S,s) decision rules with respect to capital; as a result, their individual investments are lumpy. In partial equilibrium, this yields substantial skewness and kurtosis in aggregate investment, thoug...