Seminar Capital replacement and innovation dynamics Add to calendar 2026-01-21 14:00 2026-01-21 15:15 Europe/Rome Capital replacement and innovation dynamics Conference Room Villa La Fonte YYYY-MM-DD Print Share: Share on Facebook Share on BlueSky Share on X Share on LinkedIn Send by email Scheduled dates Jan 21 2026 14:00 - 15:15 CET Conference Room, Villa La Fonte Organised by Department of Economics This event features a discussion with Fabio Bertolotti (Bank of Italy). We analyse the role of endogenous capital-embodied innovation for macroeconomic dynamics. We provide empirical evidence that new-product introduction by capital-goods producers is an engine of long-run technological progress, but drops during recessions, when investment demand is weak. We then develop a model of investment with heterogeneous firms and endogenous capital-embodied innovation. The model features two endogenous state variables: (i) the cross-sectional distribution of firms and (ii) the quality of new capital. The fraction of firms replacing their capital determines the incentives for capital-goods producers to innovate through a market-size effect. In turn, growth in new-capital quality induces final-good producers to replace their old capital. This feedback provides a propagation mechanism for macroeconomic shocks and generates fluctuations in productivity. We analyse efficiency in the model and show that capital-replacement subsidies have stronger stimulus effects than innovation subsidies in the short run, but are less desirable in the long run.