Ex Post Versus Ex Ante Measures of the User Cost of Capital
AbstractWhen doing growth accounting, should we use ex post or ex ante measures of user costs to calculate the contribution of capital? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalised across assets. But this is only true if expectations are correct. A numerical example shows that either ex ante or ex post can be closer to the true measure, depending on the parameters. I propose a hybrid method that makes use of elements of both approaches. I test this and the other methods using data for 31 UK industries.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0698.
Date of creation: Jul 2005
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User cost; capital; ex post; ex ante; growth accounting;
Other versions of this item:
- Nicholas Oulton, 2007. "Ex Post Versus Ex Ante Measures Of The User Cost Of Capital," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 295-317, 06.
- Nicholas Oulton, 2005. "Ex post versus ex ante measures of the user cost of capital," LSE Research Online Documents on Economics 19885, London School of Economics and Political Science, LSE Library.
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
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