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The Workweek of Capital and its Cyclical Implications

Working Paper 267 | Published August 1, 1987

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Edward C. Prescott Senior Monetary Advisor (former)
The Workweek of Capital and its Cyclical Implications


The neoclassical growth model studied in Kydland and Prescott [1982] is modified to permit the capital utilization rate to vary. The effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks. If following Solow [1957], the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks, the statistical properties of the fluctuations in the post-war United States economy are close in magintude and nature to those predicted by theory.

Published in _Journal of Monetary Economics_ (Vol. 21, Iss. 2-3, March-May 1988, pp. 343-360),