We analyze the role of endogenous capital-embodied innovation in macroeconomic dynamics. We first leverage a newly assembled dataset to show that the quality of new capital goods is procyclical because new-product introduction by capital-goods producers drops during recessions. We then develop a model of lumpy investment with heterogeneous firms and endogenous technological progress embodied in new capital. The model features rich interactions between two state variables: (i) the cross-sectional distribution of firms and (ii) the level of technology embodied in the new vintage of capital. The fraction of firms replacing their capital stock affects the incentives for capital-goods producers to innovate through a market-size effect. In turn, the quality of new capital affects the incentives for final-good producers to scrap and replace their old capital. This equilibrium feedback accounts for the observed comovement between investment and innovation, provides a powerful propagation mechanism for macroeconomic shocks, and generates endogenous aggregate-productivity dynamics. Policies that stimulate capital replacement have stronger short-run expansionary effects than policies that stimulate innovation, but are less desirable in the long run.

This paper studies transitional-dynamics and long-run effects of innovation policy shocks. An empirical application leverages anticipated quasi-experimental variation in U.S. patent term, a key policy tool for innovation. Upon announcement, R&D and innovation decline in anticipation of a future extension. Externalities related to innovation's cumulative nature amplify this drop in the medium term. However, R&D and innovation rise in the long run as a direct policy effect. The paper develops and estimates a novel semi-endogenous growth model replicating the empirical evidence. Counterfactual policy experiments highlight the importance of anticipation and transitional dynamics for welfare implications of innovation policies. 

We develop a model of capital accumulation in an open economy that imports investment goods from large foreign firms with market power. We model investment-goods producers as a dynamic oligopoly and characterize a Markov Perfect Equilibrium with a Generalized Euler Equation. We use this optimality condition to analyze the joint evolution of investment, prices, and markups. The markup on investment goods decreases as the economy accumulates capital toward its steady state, generating a state-dependent capital adjustment cost. We analyze the role of commitment to future production of investment goods for the dynamics of markups and investment. We use a calibrated version of the model to simulate the effects of shocks to the demand for durable goods and semiconductors during the post-2020 world recovery. Finally, we perform counterfactual analyses on the effects of expanding the production capacity. The model highlights the separate roles of increasing marginal costs—akin to capacity constraints—and market power.

This paper investigates how the disclosure of "standard-essential" patents, which represent the technical content of technological standards like 5G, affects sectoral productivity growth. A Schumpeterian growth model is developed where innovation requires combining technological components owned by different firms (complementarity) that can disclose their patents to standards. In the model, disclosures enhance innovation efficiency and growth by helping combine existing technologies but also hinder implementation due to higher royalty payments. The first positive effect dominates if complementarity or bargaining power of disclosing firms are low enough. An empirical analysis of 26 sectors in 9 European countries over 2000-2012 reveals that, on average, more disclosed patents negatively relate to TFP growth. The effect, however, varies across sectors, and the ones with the strongest complementarity drive the average negative effect.

We document that new-product quality largely accounts for the dynamics of durable-goods expenditures around the Great Recession. To this end, we assemble a rich dataset on US new-car markets during 2004-2012, combining transaction-level data on prices with detailed information about vehicles' technical characteristics. During the recession, car manufacturers introduced new models of low quality. In turn, a reallocation of expenditures away from high-quality new models accounts for a significant decline in the dispersion of expenditures. The drop in new-model quality induced a persistent decline in the technology embodied in vehicles, and likely contributed to the slow recovery of expenditures.

We assess whether the effects of fiscal policy depend on the extent uncertainty in the economy. Focusing on tax shocks, identified by the narrative series by Romer and Romer (2010), and various measures of uncertainty, we use a Threshold VAR model to allow for dependence of the effects of the tax shocks on both the level of uncertainty and the sign of the shock. We find that the economy responds more positively to tax cuts during periods of low uncertainty, while, in response to tax increases, the response of main aggregates is more negative in more uncertain times. We argue that controlling for monetary policy in fiscal VARs is important to avoid omitted variable bias. We interpret our empirical evidence in light of existing theoretical contributions.