Rüdiger Bachmann, University of Michigan

"The Nature of Capital Expenditures over The Business Cycle"

Abstract

Data on capital expenditures typically sum spending across different investment activities. Using unique firm-level survey data, we document stylized facts for five distinct types of investment: capacity expansion, restructuring, rationalization, maintenance and replacement, and others. We find that: (i) maintenance and replacements, together with capacity expansions, account for the largest share of aggregate investment; (ii) capacity expansions are the main driver of aggregate investment growth, largely through extensive margin adjustments; (iii) all types are procyclical, but their composition shifts over the business cycle, with the share of capacity expansions being procyclical and that of all other types countercyclical; and (iv) lumpiness differs across types; which, together with cyclical expenditure shares, implies that the lumpiness of total investment varies over the business cycle. These facts provide empirical targets for models with heterogeneous investment activities.

Contact persons: Manuel Menkhoff and Søren Hove Ravn