A model of the dynamically interrelated demand for capital and labor is specified and estimated. The estimates are of the first-order conditions of the firm's problem rather than of the closed-form decision rules. This use of the first-order conditions allows a random rate of return and a flexible specification of the technology. The estimates do not imply the very slow rates of adjustment displayed in other, related estimates of the demand for capital. Because adjustment is estimated to be rapid, there is,contrary to the standard view, scope for factor-prices to affect investment at relatively high frequencies.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
1899.
Length: Date of creation: May 1987 Date of revision: Publication status: published as Shapiro, Matthew D."The Dynamic Demand for Capital and Labor," Quarterly Journal of Economics, Vol. 101, No. 3, August 1986, pp. 513-542. Handle: RePEc:nbr:nberwo:1899
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