Modelling Investment When Relative Prices Are Trending: Theory and Evidence for the UK

Jamie Thompson, Hasan Bakhshi and Nicholas Oulton ()
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Jamie Thompson: Bank of England

No 203, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: This paper investigates the ability of aggregate and disaggregate equations to account for the boom in UK plant and machinery investment in the second half of the 1990s. We extend previous US research by Tevlin and Whelan (2002) by explaining the failure of the aggregate equations more formally in terms of misspecification when relative prices are trending; and by conducting the econometric analysis in a formal cointegration framework. In line with the US research, we find asset-level equations can explain the UK investment boom over this period, whereas the aggregate equation completely fails.

Keywords: investment; computers; relative prices (search for similar items in EconPapers)
JEL-codes: C51 E22 (search for similar items in EconPapers)
Date: 2003-06-04

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Persistent link: http://EconPapers.repec.org/RePEc:ecj:ac2003:203

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