UK business investment: long-run elasticities and short-run dynamics
AbstractFrom neoclassical theory output, capital stock and the user cost are cointegrated; capital and investment also (multi)cointegrate through the capital accumulation identity. An investment equation is estimated on UK data using a new capital stock series and a long series for the weighted cost of capital. Assuming CES technology, the elasticity of substitution is well-determined and below unity. Over-identifying restrictions are accepted. The long-run parameter is robust to alternative specifications, but single-equation investment relationships may obscure the dynamics. The Johansen method is over-sized, but outperforms a single equation test for excluding the capital accumulation identity from the investment equation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 27.
Date of creation: 27 Sep 2004
Date of revision:
Contact details of provider:
Web page: http://www.essex.ac.uk/afm/mmf/index.html
Other versions of this item:
- Colin Ellis & Simon Price, 2003. "UK business investment: long-run elasticities and short-run dynamics," Bank of England working papers 196, Bank of England.
- Ellis, Colin & Simon Price, 2003. "UK Business Investment: Long-Run Elasticities and Short-Run Dynamics," Royal Economic Society Annual Conference 2003 73, Royal Economic Society.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stacey Tevlin & Karl Whelan, 2000.
"Explaining the investment boom of the 1990s,"
Finance and Economics Discussion Series
2000-11, Board of Governors of the Federal Reserve System (U.S.).
- Hayashi, Fumio, 1982.
"Tobin's Marginal q and Average q: A Neoclassical Interpretation,"
Econometric Society, vol. 50(1), pages 213-24, January.
- Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Davidson, James, 1998. "Structural relations, cointegration and identification: some simple results and their application," Journal of Econometrics, Elsevier, vol. 87(1), pages 87-113, August.
- Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
- Hasan Bakhshi & Nicholas Oulton & Jamie Thompson, 2003. "Modelling investment when relative prices are trending: theory and evidence for the United Kingdom," Bank of England working papers 189, Bank of England.
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998.
"Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty,"
Studies in Economics
9812, Department of Economics, University of Kent.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. "Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty," Manchester School, University of Manchester, vol. 68(3), pages 276-300, June.
- Alan Carruth & Andrew Dickerson & Andrew Henley, 1997. "Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty," Studies in Economics 9704, Department of Economics, University of Kent.
- Lettau, Martin & Ludvigson, Sydney, 2002.
"Time-varying risk premia and the cost of capital: An alternative implication of the Q theory of investment,"
Journal of Monetary Economics,
Elsevier, vol. 49(1), pages 31-66, January.
- Lettau, Martin & Ludvigson, Sydney, 2001. "Time-Varying Risk Premia and the Cost of Capital: An Alternative Implication of the Q Theory of Investment," CEPR Discussion Papers 3103, C.E.P.R. Discussion Papers.
- Hubert, Florence & Pain, Nigel, 2001. "Inward Investment and Technical Progress in the United Kingdom Manufacturing Sector," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 134-47, May.
- Robert Chirinko & Steven M. Fazzari & Andrew P. Meyer, 2002.
"That Elusive Elasticity: A Long-panel Approach to Estimating the Price Sensitivity of Business Capital,"
0202, Department of Economics, Emory University (Atlanta).
- Robert S. Chirinko & Steven M. Fazzari & Andrew P. Meyer, 2002. "That Elusive Elasticity: A Long-Panel Approach To Estimating The Price Sensitivity Of Business Capital," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B3-1, International Conferences on Panel Data.
- Abel, Andrew B & Blanchard, Olivier J, 1986.
"The Present Value of Profits and Cyclical Movements in Investment,"
Econometric Society, vol. 54(2), pages 249-73, March.
- Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
- Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March.
- Larsen, Jens & Katharine Neiss & Fergal Shortall, 2002.
"Factor Utilisation and Productivity Estimates for the United Kingdom,"
Royal Economic Society Annual Conference 2002
120, Royal Economic Society.
- Jens Larsen & Katharine Neiss & Fergal Shortall, 2002. "Factor utilisation and productivity estimates for the United Kingdom," Bank of England working papers 162, Bank of England.
- Oliner, Stephen & Rudebusch, Glenn & Sichel, Daniel, 1995.
"New and Old Models of Business Investment: A Comparison of Forecasting Performance,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(3), pages 806-26, August.
- Stephen Oliner & Glenn Rudebusch & Daniel Sichel, 1993. "New and old models of business investment: a comparison of forecasting performance," Working Paper Series / Economic Activity Section 141, Board of Governors of the Federal Reserve System (U.S.).
- Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England.
- Engsted, Tom & Haldrup, Niels, 1999. " Multicointegration in Stock-Flow Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 237-54, May.
- Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November.
- Greenslade, Jennifer V. & Hall, Stephen G. & Henry, S. G. Brian, 2002. "On the identification of cointegrated systems in small samples: a modelling strategy with an application to UK wages and prices," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1517-1537, August.
- Davidson, James, 1994. "Identifying Cointegrating Regressions by the Rank Condition," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(1), pages 105-10, February.
- Björn A. Hauksson, 2005. "Aggregate business fixed investment," Economics wp27_bjorn, Department of Economics, Central bank of Iceland.
- Lydon, Reamonn Author-X-Name-Reamonn & Scally, John Author-X-Name-John, 2014. "Trends in Business Investment," Quarterly Bulletin Articles, Central Bank of Ireland, pages 76-89, January.
- Smith, James, 2008. "That elusive elasticity and the ubiquitous bias: Is panel data a panacea?," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 760-779, June.
- Simon Price, 2004. "UK investment and the return to equity: Q redux," Money Macro and Finance (MMF) Research Group Conference 2004 87, Money Macro and Finance Research Group.
- Stephen Millard & John Power, 2004. "The effects of stock market movements on consumption and investment: does the shock matter?," Bank of England working papers 236, Bank of England.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.