Endogenous vs Exogenously Driven Fluctuations in Vintage Capital Models

Boucekkine, Raouf;del Rio, Fernando;Licandro-Goldaracena, Omar
(1999) Journal of Economic Theory — Vol. 88, n° 1, p. 161-187 (1999)

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Authors
  • Boucekkine, RaoufUCLouvain
    Author
  • del Rio, FernandoCEPREMAP
    Author
  • Licandro-Goldaracena, OmarFEDEA
    Author
Abstract
In this paper, we present a particular case of the creative destruction model of Caballero and Hammour, (Quart. J. Econ.111 (1996), 805–851) in which both exogenous and endogenous fluctuation sources are present. We show that job creation follows a delayed differential equation with periodic coefficients. The delay is equal to the optimal age of capital goods. The period of the coefficients is equal to the period of an exogenous profitability cycle. We mathematically show that job creation is asymptotically periodic, with the same period as the profitability cycle. Furthermore, using an explicit numerical method, we find that replacement echoes generally dominate the short run dynamics. Finally, we find that the combination of the two fluctuations sources favors the appearance of asymmetries in job creation and job destruction patterns.
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Boucekkine, R., del Rio, F., & Licandro-Goldaracena, O. (1999). Endogenous vs Exogenously Driven Fluctuations in Vintage Capital Models. Journal of Economic Theory, 88(1), 161-187. https://doi.org/10.1006/jeth.1999.2554 (Original work published 1999)