This paper analyses how technological progress embodied in capital goods raises productivity and income, while at the … same time it can modify the allocation of consumption, investment and the capital stock. With capital …-embodied technological progress, new capital goods become more productive, thus more valuable, but the production capacity of the existing …

I estimate a dynamic stochastic general equilibrium model to investigate the effects of capital-embodied technological … progress on business cycle fluctuations, highlighting the role of economic obsolescence. Against a temporary shock to capital … investment is muted, thereby avoiding substantial discards of old capital goods, which are made obsolete more than usual. By …