IDEAS home Printed from https://ideas.repec.org/p/cbi/wpaper/3-rt-03.html
   My bibliography  Save this paper

Dynamic Factor Demands in a Changing Economy: An Irish Application

Author

Listed:
  • Mc Quinn, Kieran

    (Central Bank and Financial Services Authority of Ireland)

Abstract

In this paper, more advanced models of the Irish supply side are examined and applied. In particular, a specification of a flexible and dynamic model, which nests more traditional approaches, is adopted. The approach consists of a two-stage process. Firstly, a static translog cost function for the entire economy is specified and associated factor demands are estimated. Then a more flexible dynamic specification is presented which has as a special case the initial static specification. Standard Likelihood Ratio tests can examine the validity of the restrictions underpinning the relatively standard static specification. Estimating a dynamic flexible functional form specification of the supply side has a number of advantages over more traditional approaches such as the Cobb-Douglas. The elasticity of substitution between the factor inputs labour and capital can be determined by the data and not imposed by the researcher. Also the standard static approach to supply-side analysis assumes that producers respond instantaneously in their factor input decisions vis-à-vis changes in factor input prices. This assumption is rather unrealistic particularly given the nature of capital usage and investment. Also the differences in long and short run elasticities for factor demands are examined. The relationship between the two sets of elasticities in formalised in the Le Chatelier principle. The use of the more dynamic and flexible specification is justified in an Irish case. Input use adjustment is found to occur on a multi-period basis and not in the instantaneous fashion assumed by a static approach. The Le Chatelier principle is also observed meaning that long-run price elasticities of factor demands in absolute terms are greater than the short-run equivalents.

Suggested Citation

  • Mc Quinn, Kieran, 2003. "Dynamic Factor Demands in a Changing Economy: An Irish Application," Research Technical Papers 3/RT/03, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:3/rt/03
    as

    Download full text from publisher

    File URL: https://centralbank.ie/docs/default-source/publications/research-technical-papers/3rt03---dynamic-factor-demands-in-a-changing-economy-an-irish-application-(mcquinn).pdf?sfvrsn=4
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Urga, Giovanni & Walters, Chris, 2003. "Dynamic translog and linear logit models: a factor demand analysis of interfuel substitution in US industrial energy demand," Energy Economics, Elsevier, vol. 25(1), pages 1-21, January.
    2. Lopez, Ramon E., 1982. "Applications Of Duality Theory To Agriculture," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(2), pages 1-14, December.
    3. Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-1571, November.
    4. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-355, December.
    5. Allen, Chris & Urga, Giovanni, 1999. "Interrelated Factor Demands from Dynamic Cost Functions: An Application to the Non-energy Business Sector of the UK Economy," Economica, London School of Economics and Political Science, vol. 66(263), pages 403-413, August.
    6. Michael J. Boskin & Lawrence J. Lau, 2000. "Generalized Solow-Neutral Technical Progress and Postwar Economic Growth," NBER Working Papers 8023, National Bureau of Economic Research, Inc.
    7. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275.
    8. Gundlach, Erich, 2001. "Interpreting productivity growth in the new economy: Some agnostic notes," Kiel Working Papers 1020, Kiel Institute for the World Economy (IfW Kiel).
    9. C. Richard Shumway, 1983. "Supply, Demand, and Technology in a Multiproduct Industry: Texas Field Crops," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(4), pages 748-760.
    10. Slevin, Geraldine, 2001. "Potential Output and the Output Gap in Ireland," Research Technical Papers 5/RT/01, Central Bank of Ireland.
    11. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
    12. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kieran McQuinn, 2005. "Dynamic Factor Demands in a Changing Economy - An Irish Application," The Economic and Social Review, Economic and Social Studies, vol. 36(2), pages 109-126.
    2. Mc Quinn, Kieran, 2003. "Alternative Models of the Irish Supply Side," Research Technical Papers 2/RT/03, Central Bank of Ireland.
    3. McAvinchey, Ian D., 2003. "Modelling and forecasting in an energy demand system with high and low frequency information," Economic Modelling, Elsevier, vol. 20(1), pages 207-226, January.
    4. Zia-Ur- Rahman, 2019. "Influence of Excessive Expenditure of the Government in Perspective of Interest Rate and Money Circulation Which in Turn Affects the Growing Process in Pakistan," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 120-129.
    5. Bel, K. & Paap, R., 2013. "Modeling the impact of forecast-based regime switches on macroeconomic time series," Econometric Institute Research Papers EI 2013-25, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    6. repec:wyi:journl:002087 is not listed on IDEAS
    7. Laura Spierdijk & Sherrill Shaffer & Tim Considine, 2016. "Adapting to changing input prices in response to the crisis: The case of US commercial banks," CAMA Working Papers 2016-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Marc Lavoie & Gabriel Rodriguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 127-149.
    9. Matthias Hartmann & Helmut Herwartz & Yabibal M. Walle, 2012. "Where enterprise leads, finance follows. In-sample and out-of-sample evidence on the causal relation between finance and growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 871-882.
    10. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
    11. Dragos Stefan Oprea & Elena Valentina Tilica, 2014. "Day-of-the-Week Effect in Post-Communist East European Stock Markets," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(3), pages 119-129, July.
    12. Richard Heaney & Terry Evans & Peter Macauley & Margot Pearson, 2013. "The impact of Australian higher education policy changes on the production of PhDs in the field of accounting and finance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(3), pages 691-710, September.
    13. Sohail Chand & Nuzhat Aftab, 2018. "Modified Variance Ratio Test for Autocorrelation in the Presence of Heteroskedasticity," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 1-19, Jan-June.
    14. Pan, Shihua, 1990. "The microfoundations of mixed system of planning and markets: some theoretical considerations and an empirical analysis of the Chinese agriculture," ISU General Staff Papers 1990010108000010876, Iowa State University, Department of Economics.
    15. Adrian C. Darnell, 1994. "A Dictionary Of Econometrics," Books, Edward Elgar Publishing, number 118.
    16. Palesa Milliscent Lefatsa & Kin Sibanda & Rufaro Garidzirai, 2021. "The Relationship between Financial Development and Energy Consumption in South Africa," Economies, MDPI, vol. 9(4), pages 1-21, October.
    17. George Hondroyiannis & Sophia Lazaretou, 2007. "Inflation persistence during periods of structural change: an assessment using Greek data," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(5), pages 453-475, December.
    18. Siddhartha Pradeep, 2022. "Role of monetary policy on CO2 emissions in India," SN Business & Economics, Springer, vol. 2(1), pages 1-33, January.
    19. Roberto Martínez-Espiñeira, 2007. "An Estimation of Residential Water Demand Using Co-Integration and Error Correction Techniques," Journal of Applied Economics, Taylor & Francis Journals, vol. 10(1), pages 161-184, May.
    20. Carlos Santos & Maria Alberta Oliveira, 2010. "Assessing French inflation persistence with impulse saturation break tests and automatic general-to-specific modelling," Applied Economics, Taylor & Francis Journals, vol. 42(12), pages 1577-1589.
    21. José M. Belbute & Alfredo M. Pereira, 2021. "The Relationship between Consumption and CO 2 Emissions: Evidence for Portugal," Sustainability, MDPI, vol. 13(21), pages 1-16, November.

    More about this item

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:wpaper:3/rt/03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fiona Farrelly (email available below). General contact details of provider: https://edirc.repec.org/data/cbigvie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.