An Econometric Market Model of Capital and Investment Inspired by Haavelmo
In the paper steps are taken towards integration of two parts of Trygve Haavelmo’s work: investment theory and econometrics of interrelated markets. Attempts are made to bring the duality in the representation of the capital service price and the capital quantity in relation to the investment price and quantity into the foreground, by confronting it with elements from simultaneous equation modeling of vector autoregressive systems with exogenous variables (VARX), using linear four-equation models. The role of the interest rate and the modeling of the expectation element in the capital service price and the capital’s retirement pattern, and their joint effect on the model’s investment quantity and price dynamics are discussed. Simulation experiments illustrate some of the theoretical points. An extension relaxing geometric decay is outlined.
|Date of creation:||12 Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway|
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