Explaining the Investment Boom of the 1990s

Whelan, Karl; Tevlin, Stacey

doi:10.2139/ssrn.221415

Cited by 68 publications

(104 citation statements)

References 10 publications

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“…In the absence of restrictions on G(1), the long-run coe¢ cient on the user cost is g 12 (1) g 22 (1) + ( 1)g 32 (1), so that the long run response of the user cost does not identify the parameter unless g 22 (1) = 1 and g 12 (1) = g 32 (1) = 0. In Appendix B, we extend results in Tevlin and Whelan [2003] to show that when the process for a given fundamental has a unit root, the frictionless elasticity corresponding to that variable is at least partially identi…ed. When all the frictionless fundamentals have unit roots, then G(1) = I 3 and all three of the frictionless demand elasticities-if these variables were observable-could be identi…ed using their long-run responses.…”

Section: Theoretical Motivationmentioning

confidence: 58%

“…In Appendix A, we generalize the approach described in Tevlin and Whelan [2003] to show that, up to a linear approximation, the optimal capital stock will follow a distributed lag of the form:…”

Section: Theoretical Motivationmentioning

confidence: 99%

“…For example, Chirinko, Fazzari and Meyer [1999] and others have recognized that proper identi…cation of the user cost elasticity should allow for the possibility that capital may not fully re ‡ect the e¤ects of a given shock to the user cost elasticity for quite some time. Also, …ndings in Tevlin and Whelan [2003] suggest that long-run changes to the capital stock are driven primarily by shocks that are more persistent. 14 This latter issue is particularly important for identi…cation.…”

Section: Theoretical Motivationmentioning

confidence: 99%

“…1 This challenge is complicated further in this context by adjustment costs-both internal and external. These costs prolong the period needed for capital to fully adjust to a given disturbance and tend to make the demand response depend on the anticipated persistence of the shock (Tevlin and Whelan [2003]). 2 Recently, new methods have been applied to this topic that point to a fairly large aggregate response of capital demand to changes in capital supply.…”

Section: Introductionmentioning

confidence: 99%

“…Using a stationary speci…cation and aggregate data for the United States, Tevlin and Whelan [2003] …nd estimates of the user cost elasticity around 0:20.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

The "Elusive" Capital-User Cost Elasticity Revisited

Coulibaly¹,

Millar²

2011

The B.E. Journal of Macroeconomics

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This paper sheds new light on the estimation of the long-run elasticity of the demand for business capital-for a measure that includes both equipment and structures-to changes in its user cost using a quarterly panel of two-digit manufacturing industries from South Africa from 1970 to 2000. For a variety of regression speci…cations, we …nd highly signi…cant estimates of the user cost elasticity in the vicinity of 1:0 as implied by a Cobb-Douglas production function. These estimates contrast sharply with many previous studies that obtained small and/or statistically insigni…cant estimates of the user cost elasticity. This di¤erence in …ndings may owe to the fact that the capital demand curve is better identi…ed in a small open economy because shocks to capital supply are more likely to be exogenous. The economic embargo imposed on South Africa from 1985 to early 1994 temporarily forced its economy to become more closed and therefore provides a unique opportunity to assess the importance of identi…cation in the estimation of the user cost elasticity. We …nd that the estimated magnitude of the user cost elasticity is considerably smaller over the embargo period. These …ndings suggest that the true elasticity is in the vicinity of the Cobb-Douglas benchmark, and that identi…cation is important to uncovering this estimate.

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Section: Theoretical Motivationmentioning

confidence: 58%

Section: Theoretical Motivationmentioning

confidence: 99%

Section: Theoretical Motivationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…Using a stationary speci…cation and aggregate data for the United States, Tevlin and Whelan [2003] …nd estimates of the user cost elasticity around 0:20.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

The "Elusive" Capital-User Cost Elasticity Revisited

Coulibaly¹,

Millar²

2011

The B.E. Journal of Macroeconomics

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Forecasting the recent behavior of US business fixed investment spending: an analysis of competing models

Rapach

Wohar

2007

Journal of Forecasting

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We evaluate forecasting models of US business fixed investment spending growth over the recent 1995:1-2004:2 out-of-sample period. The forecasting models are based on the conventional Accelerator, Neoclassical, Average Q, and Cash-Flow models of investment spending, as well as real stock prices and excess stock return predictors. The real stock price model typically generates the most accurate forecasts, and forecast-encompassing tests indicate that this model contains most of the information useful for forecasting investment spending growth relative to the other models at longer horizons. In a robustness check, we also evaluate the forecasting performance of the models over two alternative out-of-sample periods: 1975:1-1984:4 and 1985:1-1994:4. A number of different models produce the most accurate forecasts over these alternative out-of-sample periods, indicating that while the real stock price model appears particularly useful for forecasting the recent behavior of investment spending growth, it may not continue to perform well in future periods.

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What Happens When the Technology Growth Trend Changes? Transition Dynamics, Capital Growth, and the “New Economy”

Pakko

2002

Review of Economic Dynamics

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The rapid increase in economic growth observed the late 1990s has inspired speculation about a change in the underlying trend rate of growth, attributable to an acceleration in the rate of technological progress. This paper considers the transition dynamics that are associated with such a change in the framework of a general equilibrium model that incorporates stochastic growth trends. The model suggests that endogenous transition dynamics associated with a shift in the technological growth trend can have important implications for macroeconomic growth patterns, particularly when technological change is investment-specific. Simulations of the post-WWII U.S. economy show that the model's internal propagation mechanism is capable of explaining a significant portion of the variation in growth rates over the sample period, particularly for investment, capital accumulation, and employment.

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Explaining the Investment Boom of the 1990s

Abstract: Publication informationJournal of Money, Credit and Banking, 35 (1): 1-22 Publisher Blackwell on behalf of the Ohio State University PressLink to online version

Cited by 68 publications

References 10 publications

The "Elusive" Capital-User Cost Elasticity Revisited

The "Elusive" Capital-User Cost Elasticity Revisited

Forecasting the recent behavior of US business fixed investment spending: an analysis of competing models

What Happens When the Technology Growth Trend Changes? Transition Dynamics, Capital Growth, and the “New Economy”

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