Title

Intangible capital in a real business cycle model

Date of this Version

4-2014

Document Type

Journal Article

Publication Details

Citation only

Malid, K. Z., Ali, S. Z., Khalid, A. M. (2014). Intangible capital in a real business cycle model. Economic Modelling, 39, 32-48.

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© Copyright, Elsevier B.V., 2014

ISSN

0264-9993

Abstract

Recent empirical studies have shown that intangible capital plays an important role in explaining productivity gains that have occurred during the last two decades. By introducing intangible capital in an otherwise standard theoretical real business cycle model, this paper aims to provide a theoretical foundation of the empirical findings. Our results indicate that investment in intangible capital is pro-cyclical. Both transitory aswell as permanent productivity shocks increase investment in intangible capital. However, in case of a permanent technology shock we learn that firms allocate more labor and physical capital to the creation of intangible capital which increases future profits at the cost of current profit. We also find that investment in intangible capital plays an important role in producing endogenous movements in productivity.

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This document has been peer reviewed.