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Intangible Capital In A Real Business Cycle Model, Kashif Malik, Syed Ali, Ahmed Khalid

Ahmed Khalid

Recent empirical studies have shown that intangible capital plays an important role in explaining productivity gains that have occurred during the last two decades. By introducing intangible capital in an otherwise standard theoretical real business cycle model, this paper aims to provide a theoretical foundation of the empirical findings. Our results indicate that investment in intangible capital is pro-cyclical. Both transitory aswell as permanent productivity shocks increase investment in intangible capital. However, in case of a permanent technology shock we learn that firms allocate more labor and physical capital to the creation of intangible capital which increases future profits at …