Creative Destruction, Investment Volatility, and the Average Age of Capital

Boucekkine, Raouf;Germain, Marc;Licandro-Goldaracena, Omar;Magnus, Alphonse
(1998) Journal of Economic Growth — Vol. 3, n° 4, p. 361-384 (1998)

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  • Boucekkine, RaoufUCLouvain
    Author
  • Germain, MarcUCLouvain
    Author
  • Licandro-Goldaracena, OmarFEDEA
    Author
  • Magnus, AlphonseUCLouvain
    Author
Abstract
In this article, a new numerical procedure is used to compute the equilibrium of a vintage capital growth model with nonlinear utility, where the scrapping time is nonconstant. We show that equilibrium investment and output converge nonmonotonically to the balanced growth path due to replacement echoes. We find that the average age of capital is inversely related to output, which is consistent with recent micro evidence reinforcing the importance of the embodied question. We also find that an unanticipated permanent increase in the rate of embodied technological progress causes labor productivity to slowdown in the short run.
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Boucekkine, R., Germain, M., Licandro-Goldaracena, O., & Magnus, A. (1998). Creative Destruction, Investment Volatility, and the Average Age of Capital. Journal of Economic Growth, 3(4), 361-384. https://doi.org/10.1023/A:1009716023203 (Original work published 1998)