Econometric estimation of a variable rate of depreciation of the capital stock

Measuring the capital stock is crucial in some fields of economic research. Capital stock is not observable, though, and its estimation requires the knowledge of its rate of depreciation. In most cases, econometric regressions are not used for this task. However, this methodology could be used to estimate capital stock values which are consistent with the technology of the economy. If we assume that the depreciation rate is not constant, its estimation poses some additional technical difficulties. In this paper we suggest a method to estimate a variable rate of depreciation which is shown to have wide empirical applicability and some computational advantages. Also, this method is easily implementable in standard packages by means of NLS or ML. The formalization of this method, and empirical evidence and simulation exercises based on its implementation are presented.First version received: October 2002/Final version received: May 2004All correspondence to José A. Hernandez. We would like to thank to the University of Las Palmas project uni2002/14 for financial support and two anonymous referees for helpful comments.     

我国省级公共资本经济效应分析——基于面板VAR模型的实证分析

在现有文献研究的基础上,利用1999—2010年我国29个省(自治区、直辖市)的面板数据,基于内生增长理论构建计量经济模型,检验了公共资本存量、私人资本存量与经济增长之间的面板Granger因果关系。构建面板VAR模型度量公共资本存量对经济的冲击。结果表明:公共资本存量的冲击对人均私人资本存量和人均GDP都产生正向影响,但长期看该影响不具有持续效应。     

Capacity utilization and depreciation-in-use

In this paper, the effect capacity utilization has on the depreciation of capital goods is studied, starting from a quadratic approximation to a normalized short-run cost function. Expressions for the optimal rate of capacity utilization, the demands for labour and energy, and for investment are obtained. Investment is a function of past capital stock, expected future capital stock, expected future relative prices and expected future depreciation rates. Expectations are modelled via instruments. The model is tested using US total manufacturing quarterly data. Depreciation dependent upon usage is found to be both statistically and economically significant.     

Evidence of public capital spillovers and endogenous growth in Taiwan

This study reaffirms the empirical evidence of public capital spillovers and endogenous growth by using data for the period 1966Q3–2012Q3 in Taiwan. Avoiding the use of a 100% depreciation rate for generating public and private capital stock series that is applied in some related studies, this study estimates these series by using disaggregate data of various investment assets and applying their individual depreciation rates, as calculated by Jorgenson and Stiroh (2000). The results show that, first, (per capita) output, private capital stock, and public capital stock cointegrated in the sample period. Second, the contribution of private capital to output is 50% higher than that of public capital. Third, in the presence of significant and sizeable public capital spillover effects, growth in Taiwan is strictly endogenous. Finally, the dynamic model with a cointegration equation helps in studying some sensible short-run properties of the model and bi-directional effects among variables.     

Dynamic analysis of outsourcing

This paper develops an R&D-based growth model and calibrates the model to aggregate data of the US economy to quantify a structural relationship between patent length, R&D and consumption. Under parameter values that match the empirical flow-profit depreciation rate of patents and other key features of the US economy, extending the patent length beyond 20 years leads to a negligible increase in R&D despite equilibrium R&D underinvestment. In contrast, shortening the patent length leads to a significant reduction in R&D and consumption. Finally, this paper also analytically derives and quantifies a dynamic distortionary effect of patent length on capital investment.     

Embodiment, productivity, and the age distribution of capital

An important theme in modern research on productivity has been that technological progress may be embodied in capital in the sense that traditional measures of TFP growth reflect unmeasured improvements in the quality of capital inputs as well as pure disembodied technological progress. It is commonly believed that an implication of this embodiment hypothesis is that there should be a negative relationship between measured TFP and the age of the measured capital stock. This paper presents empirical evidence which suggests that an increase in the age of the capital stock is actually associated with higher TFP growth. This surprising result may be due to the presence of a mis-measurement normally overlooked in this literature: With mis-measured improvements in capital quality, the usual depreciation rates used to construct empirical capital stocks are incorrect for growth accounting. This effect dominates the usual average age effect.     

What output-capital ratio to adopt for macroeconomic calibrations?

Regarding the output-capital ratio in heterodox macroeconomic simulation studies, a surprisingly wide range of numerical values can be found. The paper discusses quarterly US data that are publicly available where, in order to capture depreciation, the construction of the capital stock by the perpetual inventory method relies on detailed estimates of its lifetime. Subsequently the paper builds up a capital stock series by alternatively having recourse to the statistics about capital consumption and furthermore determining an initial level by an assumption about the long-term growth of capital. This procedure leads to somewhat different results. In addition, the rates of depreciation and profit are studied that are implied by the two approaches. The paper closes with two numerical proposals for the steady state values of these variables and the output-capital ratio that could be readily employed for macrodynamic modelling, and that are quite different from many of the aforementioned examples.     

Does Real Exchange Rate Depreciation Boost Capital Accumulation? An Intertemporal Analysis

This paper examines the investment‐enhancing effect of real exchange rate (RER) depreciation in a two‐sector small open economy model where a representative firm in the tradable sector maximises its discounted profit over an infinite planning period. In this framework, a one‐time, permanent, unanticipated depreciation in the RER leads to a higher steady‐state level of capital stock and investment. This consequently increases the optimal investment rate associated with an arbitrary level of capital stock as the saddle path shifts upwards. In the benchmark calibration, the investment‐enhancing effect of RER depreciation is sizeable. One per cent depreciation in the RER leads to an increase of 0.4444 per cent in the rate of capital accumulation.     

Another look at the linear q model: an empirical analysis of aggregate business capital spending with maintenance expenditures

Abstract .  The paper revisits the empirical investment literature, which has established that aggregate business fixed investment is not found to be related linearly to marginal or average Tobin's q . The theoretical background is extended here by developing a supply-side model where the depreciation rate of private capital is determined endogenously. The firm can either invest in 'new' capital, which adds directly to the existing capital stock at the presence of convex adjustment costs, or extend the durability of installed capital through maintenance expenditure, which affects its depreciation rate. The model shows that Tobin's q is then a positively related sufficient statistic for both components of aggregate capital expenditures. This central implication is tested empirically using aggregate time-series survey data from Canada on 'new' investment and maintenance expenditures covering the period 1956–93. The estimated relationships produce significant and plausible parameter estimates for the structural parameters of the q model.     

ESTIMATES OF THE AGGREGATE QUARTERLY CAPITAL STOCK FOR THE POST-WAR U.S. ECONOMY

We construct quarterly aggregate gross and net capital stock series for the post-war U.S. economy using annual capital stock, capital depreciation, and capital discard figures along with quarterly investment series. We construct nominal and real measures of all three categories in the aggregate capital stock: consumer durable goods, producer durable goods, and business structures. In constructing the nominal series we take into account the changes in capital goods' prices. The series are constructed using four different methods. Using time- and frequency-domain techniques, we compare the constructed series and characterize their short-run, business cycle, and long-run cyclical properties. We find that the constructed series exhibit very different cyclical and shock persistence dynamics. Practial implications are discussed.     

Process of accumulation of Italian human capital

Human capital (HC), from the economical point of view, is defined as a stock variable that represents the capacity of an individual generated by investment in education and work experience to produce a sustained flow of income throughout the life span.The proposed approaches that consider HC as unidimensional latent variable are recent and start from the economic theory specified in Dagum's recursive model [Dagum, C., 1994. Human capital, income and wealth distribution models and their applications to the USA. In: Proceedings of the American Statistical Association, pp. 253–258] which purports to explain the determination and the distribution of income, wealth, debt and HC.The aim of the present article is to generalize the previous approaches to the case of human capital conceived as a latent variable, composed by two main dimensions (Education HC and Work experience HC), underlying the process of determination of earned and capital income. The model is applied to the estimate of Italian household human capital in 2000 and compared with the US household human capital.     

Capital flow reversals during the taper tantrum in 2013: causes and consequences

ABSTRACT

Quantitative easing (QE) conducted by the US Fed during 2009 Q1 to 2013 Q2 expanded capital flows into emerging economies. The possibility of tapering to reduce QE caused the taper tantrum in 2013 that was characterized by sudden capital reversals and drastic exchange rate depreciation in a subset of developing countries. In this paper we investigated factors that drove capital reversals and drastic exchange rate depreciation in the developing countries. We find that actual capital inflows during the QE periods were most responsible for capital reversals thereafter. However, we do not find evidence that capital flow reversals actually contributed to the drastic exchange rate depreciation during the taper tantrum or lowered real GDP growth afterwards. Consistent with previous studies Our findings suggest that pre-emptive measures to prevent excessive capital inflows are crucial to promote the resilience of the economy. The recent experience of Korea that introduced a series of macroprudential measures shows supporting evidence for this view.

Abbreviations: EG: Eichengreen and Gupta (2015); IFS: International Financial Statistics; PRS: Park, Ramayandi, and Shin (2016); US Fed: U.S. Federal Reserve System     

Capital flows to an emerging financial market in Turkey

Increased globalization in financial markets implies that the percentage of all shares under foreign ownership in domestic stock markets has been rising. Speculative attacks on the foreign exchange market in February 2001 led to deep economic crisis in Turkey. This article will explore various indicators of the financial crisis in Turkey based on a macro-model. The foreign share of the domestic economy is a key variable to establish the degree of vulnerability during a financial crisis. An empirical investigation shows that the percentage of shares owned by foreigners on the Istanbul Stock Exchange (ISE) has been increasing since 1995 and is currently about 50 percent of the total. Furthermore, the general index of stock market prices in 1999 was at its highest level since 1995. This would imply that the general price index of the stock market is another strong indicator of an impending financial crisis. An empirical investigation of Turkish data based on a theoretical model is presented in this paper. An unexpected capital outflow would certainly cause exchange rate fluctuations, balance of payments problems, and international debt crisis. Hot money inflows boost share prices and keep the real exchange rate high. However, short-term stay of capital implies a sudden capital outflow that creates financial crisis, which results in international debt crisis. This in turn leads to a further increase in loans from the International Monetary Fund (IMF). Relatively high stock market prices may suggest an impending financial crisis. Using Turkish stock market price data, an impending financial crisis can be statistically predicted.     

我国股票市场财富效应测度的实证研究

利用我国1991～2008年股票市场与居民消费的年度数据,建立股票市场财富效应模型,采用处理非平稳时间序列回归的协整理论,对股票市场对我国城镇居民消费性支出的影响作实证分析,并用误差修正模型得到因变量的短期调整。研究结果表明：随着我国经济增长和居民收入的增加,股票财富对居民消费的影响不断增强。无论从长期还是短期分析,我国股票市场的变动都会给居民消费带来财富效应。     

The impact of public capital on the US private economy: new evidence and analysis

This paper presents new evidence on the impact of public capital on the productivity of the US private sector. Using a production function approach, we estimate the impact of public investment on private capital productivity, specifically addressing the empirical critiques of earlier studies. We find evidence of a cointegrating relationship in a dynamic specification of an empirical model that includes public infrastructure as a factor of production, indicating the existence of a long‐run relationship between the US public capital stock and the productivity of the private capital stock. The results are used to explore how the decline in the growth rate of the public capital stock would have affected the performance of the private sector.     

Real exchange rates and real interest rate differentials: A present value interpretation

Although the real exchange rate-real interest rate (RERI) relationship is central to most open economy macroeconomic models, empirical support for the relationship is generally found to be rather weak. In this paper we re-investigate the RERI relationship using bilateral US real exchange rate data spanning the period 1978-2007. Instead of testing one particular model, we build on Campbell and Shiller [1987. Cointegration tests of present-value models. Journal of Political Economy 95, 1062-1088] to propose a metric of the economic significance of the relationship. Our empirical results provide robust evidence that the RERI link is economically significant and that the real interest rate differential is a reasonable approximation of the expected rate of depreciation over longer horizons.     

Estimation of R&D depreciation rates: a suggested methodology and preliminary application

Abstract The 2008 version of the SNA has recommended capitalization of R&D expenditures. To implement this recommendation, we need to determine the depreciation rate of R&D capital. In this paper, we develop a simple model, based on a production function method that allows for monopolistic competition, to estimate the annual depreciation rate of R&D capital. We treat R&D capital as a technology shifter instead of as an explicit input factor. Both the R&D stock and the time variable are used to capture technological progress. Estimated R&D depreciation rates and markup factors are presented for the U.S. manufacturing sector and four U.S. knowledge‐intensive industries.     

中国省际物质资本存量估算:1952-2000

通过回顾和比较已有研究中国资本存量的相关文献 ,考虑到中国国内生产总值历史数据的几次重大补充和调整 ,本文对各年投资流量、投资品价格指数、折旧率 重置率、基年资本存量的选择与构造以及缺失数据进行了认真的处理和研究 ,并在此基础上利用补充和调整后的分省数据 ,根据永续盘存法估计了中国大陆 3 0个省区市 1 952— 2 0 0 0年各年末的物质资本存量。     

中国资本存量的再估算和分解

从本文研究结果来看,投资带来的资本存量快速增加是中国快速发展的重要原因,但是资本存量并没有传统研究估算的那么高,另外资本效能下降也是中国一个需要关注的现象。与传统研究不同,本文发现中国折旧变化并不是一个直线,而是分阶段逐步上升的,研究结果比较符合中国作为新兴市场国家的实际。     

The Balassa–Samuelson Effect in a Developing Country

Some Asian countries experience small real exchange rate appreciations or even a real depreciation despite a fast growth in tradable productivity. A key‐characteristic of these countries is that they are constrained on capital inflows. Is the Balassa–Samuelson theory still valid in those countries? Are there other factors likely to explain real exchange rate (RER) changes? To address these questions, we develop a two‐sector model in which a small open economy faces a constraint on capital inflows. In this setting, the RER does not only depend on productivity, but also on other factors like the rate of time preference, the age dependency ratio or the level of the external constraint. A calibration of the constrained economy model seems to match at least qualitatively empirical evidence for China, Hong Kong, Indonesia, Malaysia, Thailand, and Singapore, between 1970 and 1992.