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POTENTIAL OUTPUT AND THE CAPITAL‐OUTPUT RATIO IN THE UNITED STATES PRIVATE BUSINESS SECTOR, 1909‐1959 *
Author(s) -
Tourette John E. La
Publication year - 1965
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.1965.tb02484.x
Subject(s) - economics , capital (architecture) , gross domestic product , macroeconomics , geography , archaeology
SUMMARY This paper suggests a simple way of developing a continuous capital coefficient series based on potential output estimates. The use of the potential output estimates in the denominator of the coefficient eliminates, the distortions to the relationship between capital and output caused by cyclical fluctuations. With the influence of cyclical fluctuations eliminated, the secular trends of the coefficient are revealed for analysis. The series developed in this study is for the private business sector of the United States Economy in the period 1909‐1959. T erborgh 's study of gross capital in the private business sector serves as the basis of the capital side of the coefficient, while in the denominator, the potential gross private domestic business product is derived from K nowles ’ potential GNP estimates. However, it is emphasized that other studies of gross capital and potential output could be substituted for the ones used in this paper. Some alternative series of the capital coefficient, based on several methods of estimating potential gross product in the business sector, are given for the postwar period. The resulting series shows a significant decrease in the capital coefficient from 2.203 in 1909 to 1.944 in 1941 with a distinct secular decline since 1922. There is a sharp once‐over decrease in the coefficient during World War II. Although there is an interruption in the secular trend in the early postwar period, with a peak of 1.799 in 1951, the overall trend of the coefficient for the 1946‐1959 period is downward. The change in the coefficient is from 1.719 in 1946 to 1.620 in 1959. The rates of decrease, in compound interest terms, for the two periods, 1909‐1941 and 1946‐1959, are approximately the same. The rates are just short of one‐half and one per cent per annum.