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The Price-Quantity Decomposition of Capital Values Revisited: Framework and Examples

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  • Biørn, Erik

    (Dept. of Economics, University of Oslo)

Abstract

The often discussed problems of aggregating tangible capital assets across vintages and of decomposing value aggregates into quantity and price aggregates are revisited. For stock values and service flow values, some new results are given, and illustrated by examples, along with reinterpretations of familiar ones. If the definitions and measurement methods for prices and quantities do not ‘match’, a third, ‘quality’, component may be needed. Should this ‘buffer’ component be included in the price or quantity components, or both, or should it be accounted for separately, and in the latter case, how does it depend on the interest rate and the capital’s age? In discussing these issues, five related quantity variables and five related price variables are introduced and discussed. For certain parametric profiles for survival and efficiency loss they are equal. Some variables are observable from market data without large efforts, some are genuinely unobservable, and some can be quantified only if certain (sometimes questionable and often nontestable) assumptions are made. Examples based on three sets of parametric profiles, including exponential decay, are given.

Suggested Citation

  • Biørn, Erik, 2014. "The Price-Quantity Decomposition of Capital Values Revisited: Framework and Examples," Memorandum 27/2014, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2014_027
    as

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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2014/memo-27-2014.pdf
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    References listed on IDEAS

    as
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    2. Dale W. Jorgenson, 1974. "The Economic Theory of Replacement and Depreciation," Palgrave Macmillan Books, in: Willy Sellekaerts (ed.), Econometrics and Economic Theory, chapter 10, pages 189-221, Palgrave Macmillan.
    3. Evsey D. Domar, 1963. "Total Productivity and the Quality of Capital," Journal of Political Economy, University of Chicago Press, vol. 71, pages 586-586.
    4. W. Erwin Diewert, 2005. "Issues in the Measurement of Capital Services, Depreciation, Asset Price Changes, and Interest Rates," NBER Chapters, in: Measuring Capital in the New Economy, pages 479-556, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital accounting; Capital survival; Capital service price; Capital and interest; Arbitrage; Capital quality; Aggregation;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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