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Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation

Author

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  • Eleni Angelopoulou

    (Bank of Greece)

  • Sarantis Kalyvitis

    (DIEES, AUEB)

Abstract

This paper looks at the empirical consequences of introducing endogenous capital depreciation in the standard neoclassical model with quadratic adjustment costs. To this end, we formulate an empirical specification that accommodates capital maintenance and utilization in the Euler equations for aggregate investment. The empirical estimates with data from the Canadian survey on Capital and Repair Expenditures show that, in contrast to the existing literature, the performance of the Euler equations is improved when we account for the impact of variable capital depreciation.

Suggested Citation

  • Eleni Angelopoulou & Sarantis Kalyvitis, 2011. "Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation," DEOS Working Papers 1117, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:1117
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    References listed on IDEAS

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    2. Eleni Angelopoulou & Sarantis Kalyvitis, 2012. "Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation," Southern Economic Journal, John Wiley & Sons, vol. 78(3), pages 1057-1078, January.

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    More about this item

    Keywords

    Euler equation; endogenous depreciation; maintenance expenditures;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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