UK Business Investment: Long-Run Elasticities and Short-Run Dynamics

Colin Ellis and Simon Price
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Colin Ellis: Bank of England

No 73, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: From neoclassical theory output, capital stock and the user cost are cointegrated; capital and investment also (multi)cointegrate through the capital accumulation identity. An investment equation is estimated on UK data using a new capital stock series and a long series for the weighted cost of capital. Assuming CES technology, the elasticity of substitution is well-determined and below unity. Over-identifying restrictions are accepted. The long-run parameter is robust to alternative specifications, but single-equation investment relationships may obscure the dynamics. The Johansen method is over-sized, but outperforms a single equation test for excluding the capital accumulation identity from the investment equation.

Keywords: investment; capital stock; identification; multicointegration (search for similar items in EconPapers)
JEL-codes: C32 E22 (search for similar items in EconPapers)
Date: 2003-06-04
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: UK business investment: long-run elasticities and short-run dynamics (2004)
Working Paper: UK business investment: long-run elasticities and short-run dynamics (2003)
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