Replacement versus Historical Cost Profit Rates: What is the difference? When does it matter?
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
|Date of creation:||Dec 2012|
|Contact details of provider:|| Postal: Thompson Hall, Amherst, MA 01003|
Web page: http://www.umass.edu/economics
More information through EDIRC
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: (Daniele Girardi)
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.