Quasi‐fixed inputs and long‐run equilibrium in production: a cointegration analysis

Abstract

This paper proposes a cointegration approach to testing the validity long-run equilibrium in production, where capital and labour are taken as quasi-fixed inputs. Previous studies consider only capital as the quasi-fixed input and do not take account of the time series properties of the variables, assuming implicitly that they are stationary. The canonical cointegrating regressions (CCR) procedure is employed to test for cointegration in both the single-equation and the seemingly unrelated regressions framework, and long-run equilibrium conditions are tested. The evidence from US manufacturing reveals that capital and labour are not fully adjusted to their long-run optimal values, casting doubt on the long-run equilibrium hypothesis. Copyright K 6 4 A theoretical discussion of a short-run model based on the variable cost function is provided by Brown and Christensen (1981); see also Caves, Christensen, and Swanson (1981). 5 This specification of the stochastic cost function is an adaptation of McElroy (1987) and Brown and Walker (1995). Their analysis, however, rests on the long-run cost function and does not allow for stochastic properties of the time series. 8 Thus long-run equilibrium is viewed here as an average relationship. Kulatilaka (1985), however, views it as holding for every observation. 9 This study probably represents the first real application of the system-based CCR procedure within the context of SUR. Ogaki and Park (1998) and Ogaki (1992) also apply the system-based CCR procedure, but in a slightly different form mainly to deal with a cointegrated system with a trend stationary process. For applications of the single-equation CCR procedure, see Fisher and Park (13 Park (1990, p. 119) shows that the asymptotic distribution of the Wald tests using random walk processes is 2 distributed asymptotically. Referees, however, point out that this result could be interpreted as ad-hoc evidence, since the asymptotic behaviour of the simulation-based tests is not yet examined. 14 The H(0,1) test indicates that the null hypothesis is not rejected for all cases, except for a pair of ln P k and ln P Ł K for which the null is marginally rejected at the 5% level, but not at the 2.5% level.

Feed prices and production costs on Spanish dairy farms

“…The latter of these alternatives has the advantage of capturing long-run firm equilibrium at market prices and enabling inter-f irm comparison, whereas, in the former, the shadow prices are firmspecific. The approximation of long-run costs is based on the following equivalence (Kim & Lee, 2001):…”

“…It has been shown (Kim & Lee, 2001) that longrun variable factor demand and marginal costs are equal to short-run demand and marginal costs evaluated at z * : Meanwhile, the short-run marginal cost elasticities with respect to factor prices are defined by [8], where ζ h denotes indistinctly the price of the i th input, the quantity of the m th output, or the quantity of the k th quasi-fixed factor.…”

“…To analyse the impact of the livestock feed component on milk production costs, therefore, it is important to approximate long-run costs using the short-run estimates. This paper adopts the approach used by Morrison (1988) and Kim & Lee (2001) to approximate long-run costs based on the estimates of a short-run cost function. This enables us to identify the optimal amount of quasi-f ixed factors for each production unit and use these values to construct a long-run cost function.…”

Fórmula de valoração racional (RVF) e variabilidade no tempo das taxas de retornos de ativos

“…TV VECM have been the subject of several studies. TV VECM models can include the following features: periodic cointegration, which enables the seasonal variation of the cointegration vector, called periodic cointegration (Boswijk & Franses, 1995); fractional cointegration, in which vectors are fractioned in orthogonal cointegrating subspaces (Chen & Hurvich, 2006); intercept subspaces for ascertaining unobservable variables (Deschamps, 2003); average, space, and quantile for the design of cointegrating subspaces (Granger, 2010); incorporation of the Markov chain (Hall, Psaradakis, & Sola, 1997); incorporation of canonical cointegration regression (Kim & Lee, 2001); incorporation of deviations from the unit root in the test of interest rate spreads (Lanne, 2000); no prior knowledge of the memories of time series in fractionally integrated components (Marmol & Velasco, 2004); the combination of Markov chain with Monte Carlo simulation (Koop, Leon-Gonzalez, & Strachan, 2008); pre-filtering and preestimation of models with time-varying coefficients (Park & Hahn, 1999); maximum likelihood to estimate the Capital Asset Pricing Model -CAPM (Engel & Rodrigues, 1989); transience testing with permanent structural breaks (Engle & Smith, 1999); discrete time systems on the errors generated (Phillips, 1991); and a time-variant discount rate for studying cointegration failure (Timmermann, 1995). Surveying cointegration models and ECM (Error Correction Model) demonstrates the explanatory superiority of TV VECM (Chan, Koop, Leon-Gonzalez, & Strachan, 2010).…”