CAN A PERPETUAL INVENTORY CAPITAL STOCK BE USED FOR PRODUCTION FUNCTION PARAMETER ESTIMATION?

Edward Miller

Review of Income and Wealth, 1990, vol. 36, issue 1, 67-82

Abstract: 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.

Date: 1990
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