Capital Misallocation and Secular Stagnation

Finance and Economics Discussion Series 2017-009. Board of Governors of the Federal Reserve System (U.S.).

Sloan Foundation Economics Research Paper

74 Pages Posted: 7 Feb 2017 Last revised: 26 Jul 2018

See all articles by Andrea Caggese

Andrea Caggese

Universitat Pompeu Fabra - Department of Economics and Business (DEB)

Ander Perez-Orive

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2018

Abstract

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 low interest rates. After a shift toward intangible capital in production, the corporate sector becomes a net saver because intangible capital has a low collateral value. Firms' ability to purchase intangible capital is impaired by low interest rates because low rates slow down the accumulation of savings and increase the price of capital, worsening capital misallocation. Our model simulations reproduce key trends in the U.S. in the period from 1980 to 2015.

Keywords: Intangible Capital, Borrowing Constraints, Capital Reallocation, Secular Stagnation

JEL Classification: E22, E43, E44

Suggested Citation

Caggese, Andrea and Perez-Orive, Ander, Capital Misallocation and Secular Stagnation (July 20, 2018). Finance and Economics Discussion Series 2017-009. Board of Governors of the Federal Reserve System (U.S.).; Sloan Foundation Economics Research Paper. Available at SSRN: https://ssrn.com/abstract=2912297

Andrea Caggese

Universitat Pompeu Fabra - Department of Economics and Business (DEB) ( email )

Barcelona, 08005
Spain

Ander Perez-Orive (Contact Author)

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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