Capital Replacement and Innovation Dynamics
Abstr act:
We analyze the role of endogenous c apital-embodied innovation for macroeconomic dynamics. We provide empirical evidence that new-product introduction by capital-goods producers is an en gine of long-run technological progress, but drops during recessions, when investment demand is weak. We then develop a model of investment with heter ogeneous firms and endogenous capital-embodied innovation. The model featur es two endogenous state variables: (i) the cross-sectional distribution of firms and (ii) the quality of new capital. The fraction of firms replacing their capital determines the incentives for capital-goods producers to inno vate through a market-size effect. In turn, growth in new-capital quality i nduces final-good producers to replace their old capital. This feedback pro vides a propagation mechanism for macroeconomic shocks and generates fluctu ations in productivity. We analyze efficiency in the model and show that ca pital-replacement subsidies have stronger stimulus effects than innovation subsidies in the short run, but are less desirable in the long run.
DTSTAMP:20260409T181850Z DTSTART:20260219T130000Z DTEND:20260219T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR