Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation

Eleni Angelopoulou and Sarantis Kalyvitis

No 1117, DEOS Working Papers from Athens University of Economics and Business

Abstract: This paper looks at the empirical consequences of introducing endogenous capital depreciation in the standard neoclassical model with quadratic adjustment costs. To this end, we formulate an empirical specification that accommodates capital maintenance and utilization in the Euler equations for aggregate investment. The empirical estimates with data from the Canadian survey on Capital and Repair Expenditures show that, in contrast to the existing literature, the performance of the Euler equations is improved when we account for the impact of variable capital depreciation.

Keywords: Euler equation; endogenous depreciation; maintenance expenditures (search for similar items in EconPapers)
JEL-codes: D92 E22 (search for similar items in EconPapers)
Date: 2011-02-02
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (1)

Forthcoming in Southern Economic Journal

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