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Report
A Reassessment of Real Business Cycle Theory
During the downturn of 2008?2009, output and hours fell significantly, but labor productivity rose. These facts have led many to conclude that there is a significant deviation between observations and current macrotheories that assume business cycles are driven, at least in part, by fluctuations in total factor productivities of firms. We show that once investment in intangible capital is included in the analysis, there is no inconsistency. Measured labor productivity rises if the fall in output is underestimated; this occurs when there are large unmeasured intangible investments. ...
Working Paper
Disclosure Regulation, Intangible Capital and the Disappearance of Public Firms
Since the mid-1990s, the number of listed firms in the U.S. has halved, and their public disclosure has become opaquer. To explain these trends, we develop a general equilibrium model where the choices of going public or private and the transparency of voluntary disclosure are characterized analytically. In the equilibrium, the stock market with directed search and the private equity market with random search co-exist. According to the estimation, stricter disclosure regulation and increased intangible capital share are the key drivers of the observed patterns. Lastly, we characterize a ...
Working Paper
Capital Misallocation and Secular Stagnation
The widespread emergence of intangible technologies in recent decades may have significantly hurt output growth--even when these technologies replaced considerably less productive tangible technologies--because of structurally low interest rates caused by demographic forces. This insight is obtained in a model in which intangible capital cannot attract external finance, firms are credit constrained, and there is substantial dispersion in productivity. In a tangibles-intense economy with highly leveraged firms, low rates enable more borrowing and faster debt repayment, reduce misallocation, ...
Newsletter
The Rise of Intangible Investment and the Transmission of Monetary Policy
Monetary policy acts on the economy primarily through its effects on investment spending. But the nature of investment has evolved over time: “Intangible assets”—such as intellectual property or software—play an increasingly important role in the modern economy. In this Chicago Fed Letter, we study the implications of this change for the transmission of monetary policy. We show that investment in intangible assets is less sensitive to interest rates than investment in tangible assets. This suggests that the secular shift toward intangibles has reduced the responsiveness of aggregate ...
Report
Productivity in the slow lane?: the role of information and communications technology
As the current recovery matures in the United States, evidence is mounting that total factor productivity (TFP), the typical measure of technological change, has moved back into the slow lane. This study uses industry data to explore the extent to which the acceleration in TFP in the late 1990s and early 2000s and the subsequent deceleration are attributable to unmeasured investment by firms to take full advantage of the new capabilities made possible by information and communications technology (ICT).