Logarithmic depreciation

Evan W. Anderson and William Brock

Economic Modelling, 2021, vol. 101, issue C

Abstract: This paper studies logarithmic depreciation which is similar to conventional geometric depreciation, except that capital and investment are replaced by their logarithms. We provide empirical and theoretical evidence that logarithmic depreciation can account for aggregate capital depreciation better than geometric depreciation and better than more complicated methods that have additional parameters. We document that consumption and investment decisions in the United States and other countries appear to be made under the erroneous assumption that aggregate capital approximately depreciates geometrically and the welfare losses from doing so are large.

Keywords: Adjustment costs; Bayesian; Capital; Investment; Robustness (search for similar items in EconPapers)
JEL-codes: C51 E22 O41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:101:y:2021:i:c:s0264999321000924

DOI: 10.1016/j.econmod.2021.105503

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