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2 edition of Estimating the long-run user cost elasticity found in the catalog.

Estimating the long-run user cost elasticity

by Huntley Schaller

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  • 19 Currently reading

Published by Massachusetts Institute of Technology, Dept. of Economics in Cambridge, MA .
Written in English


About the Edition

The user cost elasticity is a parameter of central importance in economics, with implications for monetary policy, macroeconomic models, tax policy, growth and many other areas. If the supply curve for capital is upward sloping and shocks to demand area important (as they are likely to be over the business cycle), estimates of the user cost elasticity that rely on high-frequency movements in the variables will tend to be biased. This paper applies cointegration techniques to a small, open economy. The combination of exogeneity of user cost implied by the flat supply of capital curve for a small, open economy and appropriate correction for small sample bias yields an estimate of the long-run user cost elasticity which is about 75% larger (in absolute value) than the best existing estimate. In addition, the paper makes three further contributions: accounting for increases in depreciation (due to dramatic increases in computer use), estimating the long-run user cost elasticity for structures and the total capital stock, and disentangling the effects of capital goods prices, the real interest rate, and taxes. Keywords: User Cost Elasticity, Capital Stock, Investment. JEL Classification: E22, E44, H25.

Edition Notes

StatementHuntley Schaller
SeriesWorking paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-31, Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-31.
ContributionsMassachusetts Institute of Technology. Dept. of Economics
The Physical Object
Pagination44, [2] p. :
Number of Pages44
ID Numbers
Open LibraryOL24640013M
OCLC/WorldCa51807115

Elasticity in the long run and short run (Opens a modal) Elasticity and tax revenue (Opens a modal) Practice. Price Elasticity of Demand and its Determinants. 4 questions. Practice. Determinants of price elasticity and the total revenue rule. 4 questions. Practice. Price elasticity of supply. A number of papers have attempted to estimate the short- and long-run price elasticity of resi-dential electricity demand. The estimated elasticities vary widely: from close to zero and insignif-icant to about in the short run (one year or less) and from to about in the long run.

As a production manager, your job depends on your ability to minimize the cost of production. You hire a consulting firm, and its report suggests that you have plenty to worry about: the cost of capital (R) is $ per hour, the wage (W) paid to your workers is $16 per hour, the marginal product of capital (MPk) is 10 units per hour, and the marginal product of labor (MP l) is 32 units per. on the real user cost of capital: this is the long-run equilibrium relationship. On the steady-state of the investment decision in a cointegrating framework, we uncover a robust estimate of the user cost elasticity, consistent with a sensible estimate of the elasticity of substitution. Blue Book. Work at the Bank of England has been.

  of that result. In a cost model, it is common to assume that the larger the fitted value, the greater the uncertainty (variability) of the estimate. In elasticity models, both large and small estimates have lower variability whereas mid-range estimates have higher variability. This is the inherent nature of binomial models. Test yourself on this. But if, if we use the point elasticity formula, scaling by the initial point, the P1 of $3, and the QD1 of , you'd calculate the point elasticity to be two in absolute value terms. If you calculate it using the final price and quantity demanded combination, you'd end up with an estimate .


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Estimating the long-run user cost elasticity by Huntley Schaller Download PDF EPUB FB2

;theelasticityestimateishigher(about) when Clarkusesonlytax changes (rather than full user cost)to estimatethe elasticity. Usmg aggregatedata for Japan,Kiyotaki and West ()estimateausercost elasticity.

The combination of exogeneity of user cost implied by the flat supply of capital curve for a small, open economy and appropriate correction for small sample bias yields an estimate of the long-run user cost elasticity which is about 75% larger (in absolute value) than the best existing :   Table 2 presents estimates of the long-run user cost elasticity for many different values of the value of p where the BIC is minimized, the DOLS estimate of the user cost elasticity is − This is about 75% larger than the only previous comparable estimate of aggregate user cost elasticity, the Caballero () estimate that accounts for small sample by: The user cost elasticity is a parameter of central importance in economics.

If the supply curve for capital is upward sloping (as is more likely in a large economy like the U.S.) and shocks to demand are important (as they are likely to be over the business cycle), estimates of the user cost elasticity that rely on high-frequency movements in the variables will tend to be by: More recent time series studies that focus on estimating the long-run elasticity of investment to the all-in user cost tend to find larger user-cost effects that are a little more in line with.

Downloadable. This paper estimates the long run elasticity of the demand for fixed nonresidential capital (both equipment and structures) to changes in its user cost using a quarterly panel of two-digit manufacturing data from South Africa from to Using a difference specification that does not rely on cointegration, we find highly significant estimates of the user cost elasticity on.

Finance and Economics Discussion Series: The 'Elusive' Capital-User Cost Elasticity Revisited [Jonathan N. Millar, United States Federal Reserve Board] on *FREE* shipping on qualifying offers. 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 structure--to changes in its user.

Schaller, Huntley, "Estimating the long-run user cost elasticity," Journal of Monetary Economics, Elsevier, vol.

53(4), pages: RePEc:eee. Cost elasticity (also called cost-output elasticity) measures the responsiveness of total cost to changes in output. It is calculated by dividing the percentage change in cost with percentage change in output. A cost elasticity value of less than 1 means that economies of scale exists.

The term elasticity has also been used to describe the coefficient of the model ln(y) = b0 + b1*ln(x) This is called a constant elasticity model. When we do y = c0 + c1*x and compute d(ln(f))/d(ln(x)), where f is the linear predictor, this is a function of x.

We can evaluate this function at any value of x we please. Our estimate of the long run user cost elasticity of capital for the baseline case is aboutand is statistically different from zero at significance levels well below one percent.

Including industry fixed effects diminishes the absolute magnitude of the user cost elasticity estimate only slightly. The estimates of the long run output. According to empirical estimates, when wages are increased by 10% the quantity of labor demanded typically falls by about A) 3% in the short run, but 6% in the long run.

B) 5% in the short run, but 10% in the long run. C) 10% in the short run, but 20% in the long run. D) more in the short run than in the long run.

BibTeX @MISC{Coulibaly07estimatingthe, author = {Brahima Coulibaly and Jonathan Millar}, title = {Estimating the Long-Run User Cost Elasticity for a Small Open Economy: Evidence Using Data from South Africa}, year = {}}. take my elasticity estimate one step further to measure moral hazard dead-weight loss by calculating the counterfactual choices the elasticity predicts.

The deadweight loss from full-coverage insurance is approximately 20 percent of nal expenditures less than $1, This paper builds on the elasticity estimation literature in health, but also.

I am in fact regressing a system of two equations, but they are cost and revenue. Secondly, although I cannot interpret $\alpha_p$ as demand elasticity, it seems I should at least be able to interpret it as the firm's output elasticity of price.

Would you agree. $\endgroup$ – ben Mar 9 '12 at We use panel cointegration techniques to estimate the long-run user cost elasticity of capital (UCE) in a small open economy. The estimates exploit three sources of variation in Canadian tax policy: across provinces, industries, and years.

The UCE is estimated to be between and. small, open economy and DOLS estimation yields an estimate of the long-run user cost elasticity which is about 75 % larger (in absolute value) than the best existing estimate.

The best existing estimate is about (for a large, open economy). Using the same econometric procedure applied to a small, open economy yields an estimate of about Estimating the user cost elasticity raises serious simultaneity problems because of the large fluctuations in investment demand at business cycle frequencies.

If shifts in the supply curve (due to technological change and tax reforms) are more persistent than shifts in demand, cointegration techniques, which emphasize long-run movements, can.

The paper provides estimates of the long-run, tax-adjusted, user cost elasticity of capital (UCE) in a small open economy, exploiting three sources of variation in Canadian tax policy: across provinces, industries, and years.

Estimates of the UCE with Canadian data are less prone to the endogeneity problems arising from the effects of tax policy changes on the interest rate or on the price.

Applying cointegration techniques to a small, open economy yields an estimate of the long-run user cost elasticity that is about 75% larger (in absolute value) than the best existing estimate.

long-run estimates of the user-cost elasticity.4 Such an approach may justify a simple dynamic 4 A discussion of various approaches to investment and the demand for capital can be found in Chirinko (): see also Caballero (). Three other articles estimate the long‐run micro elasticity using different sources of identifying factor price variation.

Chirinko, Fazzari, and Meyer use the effects of long‐run movements in the user cost of capital on US public firms in order to identify the elasticity.

Their estimate is .mates from the data. Of the elasticity estimates obtained at the four-digit U.S. Standard Industrial Classification (SIC) level, 5 short-run estimates were statistically significant and of the correct sign, and of the long-run estimates, 83 were statistically significant and of the right sign.