Physical and Human Capital over the Business Cycle

The available disaggregated capital data are across industries. What one needs inter alia when calibrating multi-sector neoclassical growth models, are not industries’ capital endowments but the ones used in producing commodities, particularly consumption and investment goods. To fill this gap, following the existing literature on capital measurement and input-output analysis, we have sequentially produced these estimates for the US economy over the period 1998-2007. We have then used our estimates to calibrate and solve numerically a three-sector optimal growth model of physical and human capital accumulation. Using the right capital shares and stocks has improved the ability of the three-sector model to explain business cycle fluctuations