Intangible investments and international business cycles

Abstract

Intangible capital is an increasingly important factor of production in advanced economies. Governments in Europe and elsewhere promote investment in intangible assets. However, the potential role of intangibles for business cycles and the international transmission of shocks is not well understood. In this paper, we investigate the international business cycle effects of intangible capital. To this aim, we build an otherwise standard two-country real business cycle model augmented by a production sector for intangibles and allow for the non-rivalrous use of intangible capital in the production of final output goods and new intangibles. We find that a model including intangibles is associated with international co-movement of tangible investment, which is a feature observed in the data that many models fail to produce.

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Notes

  1. 1.

    The complete list of first-order conditions can be obtained from the authors upon request.

  2. 2.

    These values lie in the range of values commonly used in the literature.

  3. 3.

    The model can be linearized using standard methods. The Dynare software version 4.3.1 is used to carry out the simulations.

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Acknowledgments

We thank the anonymous referees for useful comments and suggestions. In addition, comments by various seminar participants are gratefully acknowledged. All remaining errors are the responsibility of the authors. The views expressed in this paper are those of the authors and not necessarily those of the institutions to which the authors are affiliated.

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Correspondence to Guido Baldi.

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Baldi, G., Bodmer, A. Intangible investments and international business cycles. Int Econ Econ Policy 14, 211–219 (2017). https://doi.org/10.1007/s10368-016-0339-1

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Keywords

  • International business cycles
  • Investment
  • Intangible capital