Inflation, human capital and Tobin's q

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract A less well-known empirical …nding for the US and UK is a pronounced low frequency negative relationship between in ‡ation and Tobin's q; a normalized market price of capital. This stylized fact is explained within a dynamic stochastic general equilibrium model using three key features: (i) a Lucas and Prescott (1971) physical capital adjustment cost with a rising marginal cost of investment, (ii) production of human capital with endogenous growth and (iii) an in ‡ation tax cash-in-advance economy. The baseline endogenous growth model matches the US in ‡ation and q long term correlation, while comparable exogenous growth are unable to do this, and it outperforms the exogenous growth models in explaining business cycle volatilities of q and of stock returns. Terms of use: Documents in

Tuning in RBC Growth Spectra

“…This as pointed out by Restrepo-Ochoa & Vazquez (2004) is in line with evidence in the literature over the presence of a unit root in aggregate time series also highlighted by Nelson & Plosser (1982). Given the non-stationary time series obtained from the model for the log-levels of output, consumption, and investment, now the band pass …lter can be applied at di¤erent frequencies as de…ned earlier following Basu et al (2012), and Comin & Gertler (2006).…”

Government Bias in Education, Schooling Attainment, and Long‐Run Growth

“…The average time to schooling, l H , is 0.47, which is similar to the estimate of . A cross‐country average A H of 0.15 is in the vicinity of the value calibrated by , and an average η = 0.07 is close to the cross‐country average share of public spending on education in GDP (which is 0.05) for our sample. The cross‐country average capital to output ratio of 1.91 is in line with the estimate of capital to output ratio for the United States based on a Solow growth model ().…”

Capital adjustment cost and inconsistency in income-based dynamic panel models with fixed effects

“…Following Lucas and Prescott (), Basu () and Basu et al . (), the investment technology is given by the following specification:where δ ∊ (0, 1) and θ ∊ (0, 1) are rate of depreciation and degree of adjustment cost of capital ( k it ), respectively. If θ = 0, adjustment cost of capital is prohibitively high to change the capital stock.…”

“…where c it and s it represent consumption and saving, respectively. Following Lucas and Prescott (1971), Basu (1987) and Basu et al (2012), the investment technology is given by the following specification:…”

“…We derive an analytical expression for the inconsistency employing the Ramsey growth model with a capital adjustment cost technology. A well-known parametric form for the adjustment cost function is borrowed from Lucas and Prescott (1971) that was subsequently used by Basu (1987), Hercowitz and Sampson (1991) and Basu et al (2012). Such a capital adjustment cost differs from the investment adjustment cost (e.g., Christiano et al, 2005) in the sense that the capital adjustment cost persists even in the long run.…”