The Aggregate Implications of Machine Replacement: Theory and Evidence
51 Pages Posted: 14 Nov 2007 Last revised: 17 Sep 2022
Date Written: December 1990
Abstract
This paper studies an economy in which producers must incur resource costs to replace depreciated machines. The process of costly replacement and depreciation creates endogenous fluctuations in productivity, employment and output of a single producer. We also explore the spillover effects of machine replacement by multiple, independent producers. The implications of our model are generally consistent with observed monthly output and productivity fluctuations in automobile plants and with monthly variations in employment and production in the manufacturing sector.
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