IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Replacement versus Historical Cost Profit Rates: What is the difference? When does it matter?

  • Deepankar Basu

    ()

    (University of Massachusetts, Amherst)

Registered author(s):

    This paper explains the BEA methodology for computing historical cost and replacement cost measures of the net stock of capital in the U.S. economy. It is demonstrated that there exists a threshold rate of inflation in the price of capital goods that keeps the percentage difference between the two capital stock measures constant. Hence, over periods when average inflation in the price index for capital goods is equal to the threshold value, historical cost and replacement cost profit rates would show equal percentage changes; an example of such a period for the U.S economy is the whole postwar period 1946–2010. Moreover, trends in both replacement cost and historical cost profit rates display very similar movements over long periods, making the choice of capital stock valuation irrelevant for empirical analysis of profitability trends. JEL Categories: E01, B51

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.umass.edu/economics/publications/2012-11.pdf
    Download Restriction: no

    Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2012-11.

    as
    in new window

    Length:
    Date of creation: Dec 2012
    Date of revision:
    Handle: RePEc:ums:papers:2012-11
    Contact details of provider: Postal: Thompson Hall, Amherst, MA 01003
    Phone: (413)545-2590
    Fax: (413)545-2921
    Web page: http://www.umass.edu/economicsEmail:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ums:papers:2012-11. 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: (Arslan Razmi)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.