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Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation

Author

Listed:
  • Eleni Angelopoulou

    () (Bank of Greece)

  • Sarantis Kalyvitis

    () (DIEES, AUEB)

Abstract

This paper looks at the empirical consequences of introducing endogenous capital depreciation in the standard neoclassical model with quadratic adjustment costs. To this end, we formulate an empirical specification that accommodates capital maintenance and utilization in the Euler equations for aggregate investment. The empirical estimates with data from the Canadian survey on Capital and Repair Expenditures show that, in contrast to the existing literature, the performance of the Euler equations is improved when we account for the impact of variable capital depreciation.

Suggested Citation

  • Eleni Angelopoulou & Sarantis Kalyvitis, 2011. "Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation," DEOS Working Papers 1117, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1117
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    File URL: http://wpa.deos.aueb.gr/docs/Angelopoulou_Kalyvitis_wp.pdf
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    References listed on IDEAS

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    1. J. Aznar-Márquez & J. R. Ruiz-Tamarit, "undated". "Endogenous Growth, Capital Utilization and Depreciation," Working Papers 2004-21, FEDEA.
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    Cited by:

    1. Fabrizio Patriarca & Claudio Sardoni, 2014. "Growth with Unused Capacity and Endogenous Capital Depreciation," Metroeconomica, Wiley Blackwell, vol. 65(4), pages 646-670, November.
    2. Fabrizio Patriarca & Claudio Sardoni, 2014. "Growth with Unused Capacity and Endogenous Depreciation," Economics Working Paper Archive wp_795, Levy Economics Institute.

    More about this item

    Keywords

    Euler equation; endogenous depreciation; maintenance expenditures;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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