Patterns of Plant Adjustment

This paper provides a description of the dynamic choices of manufacturing plants when they undertake rapid adjustment in output. The focus is on epsodes that involve lumpy adjustment in capital or employment. I examine the behavior of variables such as capital utilization, hours per worker, overtime use, capacity utilization, materials and energy use. Finally I describe the observed patterns of productivity during those adjustment episodes and propose some hypotheses that seem to fit them. The costs associated with output adjustment seem to arise form building and destroying a particular organizaqtion of the structure of production and associated worker experience. As such they are related to learning-by-doing and investment in specific training.capital investment, employment adjustment, capacity utilization, productivity, learning effects, specific training

News About News: Information Arrival and Irreversible Investment

We analyze how uncertainty about when information about future returns to a project may be revealed affects investment. While 'good news' about future returns boosts investment, 'good news about news' (that is news that information may arrive sooner) is shown to depress investment. We show that early revelation increases the value of an irreversible investment project to a risk-neutral investor. We relate our results on preference for early revelation to results in non-expected utility theory. Our framework allows us to study irreversible investment projects whose value has a time-variable volatility. We also consider how heterogeneity of revelation information across firms may induce a better-informed firm to share its information with competitors.

Capital quality improvement and the sources of growth in the euro area

Capital quality improvement is a general phenomenon. Therefore quality correction is needed in price indexes. There is substantial evidence of biases in the official price indexes of capital equipment. We apply to euro area statistics estimates of these biases based on US data thus deriving quality-adjusted price indexes. Adjusted for quality, productive capital stocks of equipment and software grow on average 3 percentage points faster annually - a doubling of their growth rates. Quality-adjusted output grows 0.46 percentage points faster annually - a 20 percent increase. In terms of growth accounting, quality adjustment subtracts 11 percentage points from the share of TFP in aggregate growth and adds them to the share of equipment stock. For the 1990s only the difference is even higher: 14 percentage points. When all is told, embodied technological change accounts for 46 percent of (quality-adjusted) output growth in the euro area over the period 1982 to 2000. JEL Classification: O3, O47, D24, E22embodied technological change, equipment investment, euro area, investment price deflators, output growth

The Production-Side Approach to Estimating Embodied Technological Change

We estimate the rate of embodied technological change directly from plant-level manufacturing data on current output and input choices along with histories on their vintages of equipment investment. Our estimates range between 8 and 17 percent for the typical U.S. manufacturing plant during the years 1972-1996. Any number in this range is substantially larger than is conventionally accepted with some important implications. First, the role of investment- specific technological change as an engine of growth is even larger than previously estimated. Second, existing producer durable price indices do not adequately account for quality change. As a result, measured capital stock growth is biased. Third, if accurate, the Hulten and Wykoff (1981) economic depreciation rates may primarily reflect obsolescence.technological change, production function estimation

On the cyclicality of schooling: Theory and evidence

Economic theory indicates that opportunity-cost considerations tend to make schooling countercyclical whereas ability-to-pay considerations have the opposite effect. We examine the college enrollment decisions of individuals using the Current Population Survey and find that their propensity to enroll is countercyclical. There seems to be significant substitution during the business cycle between human capital investment and competing economic activities. The decision to enroll in college is related strongly to labor market conditions (measured by the state-level unemployment rate and earnings) and to the real interest rate. Furthermore, there are significant differences across demographic groups.

Real versus financial frictions to capital investment

We formulate and estimate a structural model of firm investment behavior that specifies the exact channel through which financial frictions bite. The model also allows for the existence of both convex and non-convex costs to adjusting capital. Essentially, we move beyond simply testing and rejecting a neoclassical model without frictions. Our quantitative estimates show that both real and financial frictions have an important effect on firm investment dynamics. JEL Classification: E22adjustment costs, financing constraints, Investment

Business Cycles and Investment in Human Capital: International Evidence on Higher Education

We study the effect of economic fluctuations on investment in higher education for a wide range of countries. Our main focus is foreign students who come to the United States to attend university. There is a strong relation between enrollment and the business cycle in the sending country. The cyclical pattern of enrollment is sharply different for two groups of countries. For OECD countries enrollment is countercyclical, whereas for non-OECD countries it is procyclical. At business cycle frequencies, opportunity cost plays a dominant role in explaining enrollment from OECD countries, whereas ability to pay and credit constraints seem more prevalent at non-OECD countries. The results are confirmed using data on domestic enrollment from national sources.Business Cycles, Education, OECD, Credit Constraints, Opportunity Cost

Persistence of Business Cycles in Multisector RBC Models.

In this paper we explore whether the changing composition of output in response to technology shocks can play a significant role in the propagation of shocks over time. For this purpose we study two multisector RBC models, with two and a three sectors. We find that, whereas the two sectors model requires a high intertemporal elasticity of substitution fo consumption to match the dynamic properties of the US data, the three sector model has a strong propagation mechanism under conventional parameterizations, as long as the factor intensities in the three sectors are different enough.MACROECONOMICS ; BUSINESS CYCLES ; ECONOMIC GROWTH

Firms’ financing dynamics around lumpy capacity adjustments

We study how firms adjust their financial positions around the times when they undertake lumpy adjustments in capital or employment. Using U.S. firm level data, we document systematic patterns of cash and debt financing around lumpy adjustment, remarkably similar across capital and employment. Firm-specific fundamentals reflected in Tobin’s Q, profitability and productivity are leading indicators of lumpy adjustment. Cash and debt capacity are actively manipulated, and contribute significantly quantitatively, to increase financial resources in anticipation of the expansion of firm capacity. Lumpy contractions in productive capacity follow years where firms reduce cash balances and hold above average levels of debt. During and after contractions, firms rebuild cash and reduce debt growth significantly in a concerted effort to restore financial resources by adjusting their productive operations

Did the financial crisis affect the market valuation of large systemic U.S. banks?

We examine the impact of the financial crisis on the stock market valuation of large and systemic U.S. bank holding companies (BHCs). Using the Bertsatos and Sakellaris (2016) model of fundamental valuation of bank equity, we provide evidence that the financial crisis has not altered investors’ attitudes towards bank characteristics. In particular, before, during, and after the crisis, investors in large and systemic U.S. BHCs seemed to penalize leverage, albeit temporarily. Both before and after the crisis, they reward size in the short run. This pattern is appearing only briefly during the crisis. We also show that bank opacity plays no role in market valuation either in the short run or in the long run. Last but not least, we find evidence that stress testing has been informative to the market and that those BHCs that failed at the post-crisis stress tests were not subsequently valued differently by the market