An Analysis of the Dynamics of the Vintage Capital

This paper explores the route by which aggregate shocks impact vintage capital distribution and aggregate employment by changing the fraction of plants that choose to adjust. Neutral technological shocks increase job reallocation and aggregate employment. The increasing adjustment hazard affects job reallocation by impacting the marginal product of capital for all vintage; therefore, capital circulates from the updated sector null to the old sector one. As a result, labors in the old sector with old technology are endowed with more capital, which boosts their productivity and relative wages, the labors in the old sector increases. Aided by endogenous adjustment ratios, one can view the vintage capital model in a new perspective