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CAN A PERPETUAL INVENTORY CAPITAL STOCK BE USED FOR PRODUCTION FUNCTION PARAMETER ESTIMATION?
Author(s) -
Miller Edward
Publication year - 1990
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/j.1475-4991.1990.tb00262.x
Subject(s) - economics , stock (firearms) , econometrics , production (economics) , capital (architecture) , perpetual inventory , interest rate , production function , financial economics , macroeconomics , inventory management , operations management , engineering , mechanical engineering , history , archaeology , inventory theory
Due to lack of data on capital disappearance, we simply do not know the covariance of the capital stock with factor inputs and prices well enough to estimate production function parameters. Since replacement rates are rational economic decisions, the errors in a perpetual inventory capital stock vary systematically with the business cycle and such economic variables as rates of technical progress and interest rates. This introduces systematic errors into calculated parameters of production functions and rates of technical progress.