IDEAS home Printed from https://ideas.repec.org/p/liv/livedp/202414.html
   My bibliography  Save this paper

Intangible Cycles

Author

Listed:
  • Shalini Mitra
  • Gareth Liu-Evans

Abstract

This paper investigates the role of an intangible investment technology shock in driving and propagating business cycles. In a dynamic general equilibrium framework with borrowing constrained entrepreneurs, we show that consumption smoothing by entrepreneurs, which is associated with reallocation of physical investment and hours from final goods to intangible investment, is the key mechanism through which aggregate co-movement arises in the model. The reallocation channel is especially strong in the presence of binding financial constraints. We use firm level intangible capital estimates to discipline the model and show that the entrepreneur’s degree of risk aversion, which determines their preference for consumption smoothing given their constant relative risk aversion (CRRA) utility, plays a key role in quantitatively generating the observed joint aggregate business cycle dynamics of output, consumption, investment and hours. For instance, entrepreneurs can display too little or too much risk aversion, in which case aggregate comovement is negated.

Suggested Citation

  • Shalini Mitra & Gareth Liu-Evans, 2024. "Intangible Cycles," Working Papers 2024-14, University of Liverpool, Department of Economics.
    • Handle: RePEc:liv:livedp:202414
    as

    Download full text from publisher

    File URL: https://www.liverpool.ac.uk/media/livacuk/schoolofmanagement/research/economics/ECON,WP,202414.pdf
    File Function: First version, 2021
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Intangible investment shock; reallocation; intangible capital; business cycles; aggregate comovement;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:liv:livedp:202414. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rachel Slater (email available below). General contact details of provider: https://edirc.repec.org/data/mslivuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.