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The Market for Used Capital: Endogenous Irreversibility and Reallocation Over the Business Cycle

Publication ,  Journal Article
Lanteri, A
Published in: Economic Research Initiatives at Duke (ERID)
January 17, 2016

Capital reallocation is procyclical in the data, but countercyclical in standard business-cycle models. To solve this puzzle, I build a model of endogenous partial irreversibility, with heterogeneous firms facing aggregate and idiosyncratic productivity shocks. Used investment goods are imperfect substitutes for new ones because of firm-level capital specificity. The price of used capital responds to aggregate shocks, leading to equilibrium real-option effects on investment and reallocation. The model generates procyclical capital reallocation and procyclical price of used capital, consistent with new industry-level evidence I present, and provides a microfoundation for both micro and macro capital adjustment costs.

Duke Scholars

Published In

Economic Research Initiatives at Duke (ERID)

Publication Date

January 17, 2016

Issue

207

Related Subject Headings

  • Economics
  • 15 Commerce, Management, Tourism and Services
  • 14 Economics
 

Citation

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Lanteri, A. (2016). The Market for Used Capital: Endogenous Irreversibility and Reallocation Over the Business Cycle. Economic Research Initiatives at Duke (ERID), (207).
Lanteri, A. “The Market for Used Capital: Endogenous Irreversibility and Reallocation Over the Business Cycle.” Economic Research Initiatives at Duke (ERID), no. 207 (January 17, 2016).
Lanteri A. The Market for Used Capital: Endogenous Irreversibility and Reallocation Over the Business Cycle. Economic Research Initiatives at Duke (ERID). 2016 Jan 17;(207).
Lanteri, A. “The Market for Used Capital: Endogenous Irreversibility and Reallocation Over the Business Cycle.” Economic Research Initiatives at Duke (ERID), no. 207, Jan. 2016.
Lanteri A. The Market for Used Capital: Endogenous Irreversibility and Reallocation Over the Business Cycle. Economic Research Initiatives at Duke (ERID). 2016 Jan 17;(207).

Published In

Economic Research Initiatives at Duke (ERID)

Publication Date

January 17, 2016

Issue

207

Related Subject Headings

  • Economics
  • 15 Commerce, Management, Tourism and Services
  • 14 Economics