When doing growth accounting, should we use ex post or ex ante measures of user costs tocalculate the contribution of capital? The answer, based on a simple model of temporaryequilibrium, is that ex post is better in theory. In practice researchers usually calculate ex postuser costs by assuming that the rate of return is equalised across assets. But this is only true ifexpectations are correct. A numerical example shows that either ex ante or ex post can becloser to the true measure, depending on the parameters. I propose a hybrid method thatmakes use of elements of both approaches. I test this and the other methods using data for 31UK industries.
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0698.
Find related papers by JEL classification: 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 C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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