Capital over the Business Cycle: Renting versus Ownership
Year: 2017
Type: article
Abstract: We find that capital renting makes up one‐fifth of U.S. capital expenditures, and it increases during downturns. Further, we present cross‐country evidence that output losses after financial crises are smaller where renting is more prevalent. To understand these findings, we build a general equilibrium model with borrowing constraints and with the option to rent or buy capital. The countercyclicality of rentals occurs because their supply increases, as renting serves as an additional means of savings when credit markets malfunction. Moreover, demand also shifts toward rentals as they become relatively cheaper. By absorbing excess savings, renting mitigates financial crises.
DOI: 10.1111/jmcb.12419
Authors: PETER N. GAL, GABOR PINTER
Institutions: Tinbergen Institute, University of Cambridge
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121597976