Capital Misallocation and Secular Stagnation

Abstract

The widespread emergence of intangible technologies in recent decades may have signi…-cantly hurt output growth-even when these technologies replaced considerably less productive tangible technologies-because of structurally low interest rates caused by demographic forces.This insight is obtained in a model in which intangible capital cannot attract external …nance, …rms are credit constrained, and there is substantial dispersion in productivity. In a tangiblesintense economy with highly leveraged …rms, low rates enable more borrowing and faster debt repayment, reduce misallocation, and increase aggregate output. An increase in the share of intangible capital in production reduces the borrowing capacity and increases the cash holdings of the corporate sector, which switches from being a net borrower to a net saver. In this intangibles-intense economy, the ability of …rms to purchase intangible capital using retained earnings is impaired by low interest rates, because low rates increase the price of capital and slow down the accumulation of corporate savings.

Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia

“…Nicolas Crouzet and Janice Eberly (2018) argue that growing intangibles help explain both the rising market power and lower capital investment. Andrea Caggese and Ander Perez (2018) show how growing intangibles may help account for some of the same macroeconomic trends on which we focus in this paper.…”

Asset Specificity of Nonfinancial Firms

“…They include identifiable intangibles such as software, patents, usage rights, as well as organizational capital that is not necessarily independently identifiable. A key concern is that rising intangibles could decrease firms' liquidation values, and then tighten borrowing constraints (Giglio and Severo, 2012;Caggese and Perez-Orive, 2018;Li, 2019;Falato, Kadyrzhanova, Sim, and Steri, 2020). We find that the change in firms' liquidation values in recent years may not be substantial, for three reasons.…”

Mind the financing gap: Enhancing the contribution of intangible assets to productivity

“…First, intangible investment is often irreversible, takes more time to translate into sales compared to physical capital and has more uncertain returns, so that it appears particularly unappealing in the current context. 14 The other potentially aggravating factor is linked to the necessarily loose monetary policy implemented to contrast financial markets turmoil, which may favour a reallocation of resources towards collateralized tangible-intensive firms; indeed, while a low level of interest rates encourage investments across the board, intangible-intensive firms would be relatively disadvantaged due to the low collateral value of their assets and the higher difficulties to accumulate savings in a low interest rate environment (Caggese and Perez-Orive, 2019).…”