UK Business Investment: Long-Run Elasticities and Short-Run Dynamics
From 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.
|Date of creation:||04 Jun 2003|
|Date of revision:|
|Contact details of provider:|| Postal: Office of the Secretary-General, Rm E35, The Bute Building, Westburn Lane, St Andrews, KY16 9TS, UK|
Phone: +44 1334 462479
Web page: http://www.res.org.uk/society/annualconf.asp
More information through EDIRC
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.:
- 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.
- Nigel Pain, 2000. "Inward investment and technical progress in the United Kingdom manufacturing sector," NIESR Discussion Papers 175, National Institute of Economic and Social Research.
- Alan Carruth & Andrew Dickerson & Andrew Henley, 1997.
"Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty,"
Studies in Economics
9704, School 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 & Andy Dickerson & Andrew Henley, 1998. "Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty," Studies in Economics 9812, School of Economics, University of Kent.
- 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.
- Karl Whelan & Stacey Tevlin, 2000.
"Explaining the investment boom of the 1990s,"
Open Access publications
10197/245, School of Economics, University College Dublin.
- 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.).
- Karl Whelan & Stacey Tevlin, 2003. "Explaining the investment boom of the 1990s," Open Access publications 10197/202, School of Economics, University College Dublin.
- Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
- 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.
- Robert Chirinko & Steven M. Fazzari & Andrew P. Meyer, 2002. "That Elusive Elasticity: A Long-panel Approach to Estimating the Price Sensitivity of Business Capital," Emory Economics 0202, Department of Economics, Emory University (Atlanta).
- 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.
- 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.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ecj:ac2003:73. See general information about how to correct material in RePEc.
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.