An index of growth due to depreciation*

Abstract. While factors such as inflation, technological change and growth often have been discussed in connection with the adequacy of provisions for depreciation under a historical cost model, there is another dimension to the capital maintenance problem and it concerns the multiplier effect of depreciation. When an amount equal to depreciation is reinvested, a firm's productive capacity tends to increase. Reinvestment of depreciation also increases a firm's financial capital if book depreciation is more accelerated than economic depreciation. Based on a model developed by Ijiri (1967), this paper derives an index of this growth due to depreciation. The index estimates a bias in conventional depreciation methods that has been overlooked in the literature on the subject. This bias has implications for inflation accounting because if conventional depreciation methods have a built-in growth bias, adjustments for inflation may be a type of double counting. A second implication mentioned concerns the bias in accounting rates of return. Résumé. Bien que des facteurs tels l'inflation, les changements technologiques et la croissance ont souvent été examinés à propos de la pertinence des provisions pour dépréciation dans le cadre du modèle au coût historique, un autre aspect du problème de préservation du capital subsiste et il concerne l'effet multiplicateur de l'amortissement. Lorsqu'un montant égal à l'amortissement est réinvesti, la capacité d'exploitation de la firme a tendance à s'accroître. Le réinvestissement de l'amortissement fait aussi augmenter le capital de la firme si l'amortissement comptable est plus accéléré que la dépréciation économique. En se basant sur un modèle élaboré par Ijiri (1967), cet article dérive un indice de cette croissance attribuable à l'amortissement. L'indice estime un biais des méthodes traditionnelles, qui a été négligé dans les recherches consacrées au sujet. Ce biais a des implications en comptabilité des effets de l'inflation, car si les méthodes d'amortissement traditionnelles comportent implicitement ce biais de croissance, les redressements relatifs à l'inflation peuvent être assimilés à un double comptage. Une deuxième conséquence est signalée, soit le biais relatif aux taux de rendement comptable.     

Nonlinear Transmission of Financial Shocks: Some New Evidence

Financial shocks generate a protracted and quantitatively important effect on real economic activity and financial markets only if the shocks are both negative and large. Otherwise, their role is quite modest. Financial shocks have become more important for economic fluctuations after 2000 and have contributed substantially to deepening the recessions of 2001 and 2008. The evidence is obtained using a new econometric procedure based on a Vector Moving Average representation that includes a nonlinear function of the financial shock. This method is a contribution of the present work.     

THE DRIVING FORCES BEHIND THE FALLING LABOUR SHARE AND PERSISTENT UNEMPLOYMENT IN JAPAN

Like in most advanced countries, the labour income share in Japan has been falling since the mid‐1970s. However, in contrast to other advanced economies, Japan experienced an exceptional recessive period in the 1990s and 2000s, with the rate of unemployment rising to a historical maximum of 5.5% in 2002, to persist above 4% in subsequent years. In the present paper, we examine the main causes behind the paths followed by the labour income share and the unemployment rate during the post‐1997 crisis period (1997–2002) and the transition years that followed (2002–2009). We do so by estimating a multi‐equation macro model that allows us to look separately at the various components of this particular labour market: wages, output, and employment. Our main finding is that the fall in the labour share can be attributed to the changes that took place within the labour relations system (the weakening of unions mainly) and that the surge in unemployment can be altogether ascribed to the distorting effects of the sizeable and increasing public debt.     

THE EVOLUTION OF INFLATION AND UNEMPLOYMENT: EXPLAINING THE ROARING NINETIES

This paper analyses the relation between US inflation and unemployment from the perspective of ‘frictional growth,’ a phenomenon arising from the interplay between growth and frictions. In particular, we focus on the interaction between money growth and nominal frictions. In this context we show that monetary policy has not only persistent, but permanent real effects, giving rise to a long‐run inflation‐unemployment tradeoff. We evaluate this tradeoff empirically and assess the impact of productivity, money growth, budget deficit, and trade deficit on the US unemployment and inflation trajectories during the nineties.