Intangibles and Real Business Cycle

The recent financial crisis has created a significant deviation between real world and existing business cycle theories. This paper follows the spirit of McGrattan and Prescott (2012) and reassesses this labor productivity puzzle by considering a real business cycle (RBC) model with R&D assets and organizational capital. It contributes to the literature in two ways. First, R&D assets and organizational capital are assumed to be produced using different technologies. Second, in addition to utilize BEA’s recently published R&D data, we construct our own data on organizational capital, which are often constructed by relying on a lot of guesswork in previous studies. Our accounting exercises confirm the finding of McGrattan and Prescott (2012) that the labor productivity puzzle is much less of an issue when intangible capitals are incorporated into real business cycle models.