effects of energy price rise on investment firm level evidence from indian manufacturing sector this paper analyses the effects of the rising prices of energy products on the investment of a large panel of manufacturing firms in india during 1993 2013 the prime motivation behind this study is the absence of an empirical study into this research issue exclusively on indian economy the empirical results obtained by estimating an error correction model ecm using generalized method of moments gmm show that energy price rise has negative effect on the investment of firms in the manufacturing sector the negative effect is transmitted to the firm s investment through both demand side and supply side factors the transmission also depends upon factors such as the energy intensity of production the results also show that the sales growth investment relationship becomes weak in the face of the rising prices of the energy which could be due to the cautious approach to investment adopted by the firms therefore it calls for the attention of the policy makers to evolve a comprehensive energy policy to ensure continuous supply of energy at affordable prices to the manufacturers

farmers investment behavior an empirical assessment of two specifications of expectations the capital investment decision is modeled and two different assumptions about expectations are compared and tested using panel data for dutch dairy farms the utilization of panel data allowed to account for the possibility that the intercept in the function for capital varies over the farms the models are estimated using the generalized method of moments gmm for dynamic panel data the model based on static expectations fits the data well the results obtained from the rational expectations model are not consistent with the theory

environmental policy instruments in an international duopoly with feedback investment strategies abstract this paper analyses the effects of the environmental policy instruments taxes and standards on the investment behaviour of firms in the context of an international duopoly two production factors are considered the capital stock and a polluting input the government of each country values high profits for its firm and a good environmental quality through standards on the polluting input firms get commitment on output which is not the case under taxes standards thus seem a better environmental policy instrument because for the same use of the polluting input taxes lead the duopolists to higher investment with lower profits this result was derived in a two stage game model it was confirmed in a differential game model with open loop strategies the paper shows that in a differential game model with feedback strategies an effect occurs that counteracts the first effect the cause of this is that taxes induce substitution between capital and the polluting input the conclusion is that under taxes firms invest more due to the absence of commitment but invest less due to substitution between the inputs the net effect depends on the values of the parameters taxes are better than standards for low rates of depreciation and discount for low investment costs and for high productivity of capital

the specification and estimation of interrelated factor demands under uncertainty abstract this paper studies a model of the firm s interrelated demands for the factors of production incorporating exogenous variables with uncertain future values multiple quasi fixed factors depreciation in use and non symmetric internal costs of adjustment the inputs considered are production labor non production workers capital inventories of non finished goods and capacity and non production worker utilization rates a simultaneous system of factor demand equations with constraints is estimated and using u s manufacturing data the model is shown to be tractable under certain assumptions the results are encouraging given the complexity and the nature of the model

intertemporal production and intertemporal substitution in output supply and input demand abstractthis article presents an intertemporal model of production with multiple inputs to investigate substitution opportunities facing firms over time the firm s intertemporal profit maximization problem is characterized with the familiar cost function and various intertemporal substitution elasticities are delineated for output supply and input demand the absence of intertemporal substitution in production can imply production smoothing and allowance for intertemporal substitution in labour demand reinforces the prediction of the real business cycle model for aggregate us manufacturing we find substantial substitution in output supply and labour demand over time due to intertemporal changes in output price and wage rates

estimation of scale economies underlying growth and productivity the empirical implications of data aggregation estimation of scale economies underlying growth and productivity patterns is typically based on aggregated data raising questions about the potential for aggregation biases this paper provides empirical evidence on the existence and patterns of such biases we use a cost based model to estimate short long run and internal external scale effects for u s manufacturing data at different aggregation levels our results suggest that aggregation biases in such a model are not substantive also internal scale economies seem more appropriately represented by the aggregate data whereas more disaggregated data appears preferable for estimation of external or spillover effects that occur between industries or sectors

investment and the nominal interest rate the variable velocity case investment and the nominal interest rate the variable velocity case evan f koenig models treating money either as a consumer good or as a producer good are encompassed by a model in which both households and firms use money as a buffer between receipts and expenditures a rise in nominal interest rates increases resources devoted to intermediation while discouraging purchases financed from accumulated cash if investment is financed from contemporaneous earnings there is a tendency to substitute out of consumption and into investment when interest rates are high greater resources devoted to intermediation generate a negative wealth effect the net impact on investment is ambiguous i introduction the relationship between investment and the nominal interest rate in an economy where the cash balances of households and firms are rigidly linked to their respective expenditures has been examined by koenig 1987b in such an economy the nominal interest rate acts like a tax on agents purchases as a result households are inclined to save rather than spend when the nominal interest rate is relatively high provided that at the margin firms are able to finance at least some of their capital spending out of contemporaneous earnings this increase in desired saving is only partially offset by a decrease in desired investment realized investment is thus greatest when the nominal interest rate is high in comparison to its own moving average a short run tobin effect this paper extends koenig s analysis to the case in which households and firms at a cost in terms of real resources are able to increase the velocity of money in this context it is shown that the short run tobin effect may be reversed intuitively when the nominal interest rate is high consumption of financial services by households and firms may rise to such an extent that any decline in the consumption of nonfinancial goods and services is overwhelmed reducing the resources available for investment as in the earlier paper i allow for the possibility that some fraction 1 u of firms investment expenditures can be financed from contemporaneous earnings unless u equals zero there is a stockman effect 1981 a tendency for investment to be depressed whenever the nominal interest rate is expected to be higher on average in the future than it has been in the past when u equals unity so all investment must be financed out of accumulated assets the money balances of the representative firm can be interpreted as an argument of its production function regardless of the value of u the money balances of households may be thought of as an argument along with gross household spending of an indirect utility function thus both of the most frequently used methods of modeling the role of money as an argument of the household utility function and as an argument of the production function are special cases of the model developed here this is a substantially less restrictive framework than that employed by fischer 1979 sweeney 1984 cohen 1985 and obstfeld 1985 each of whom has also examined the effects of anticipated policy in an economy where the velocity of money is variable 1 section ii discusses the utility and profit maximization problems facing households and firms respectively and shows how the behavior of economic agents is affected by the presence of real costs of financial management a dynamic analysis is undertaken in section iii and it is shown that the short run tobin effect may operate in reverse a summary concludes the paper throughout agents are assumed to possess perfect foresight ii the model preliminary analysis intuition imagine a world in which each household receives wage and dividend income at discrete intervals but desires to purchase and consume output continuously through time

factor demand models with nonlinear short run fluctuations abstract this paper considers asymmetric costs of adjustment that propagate nonlinear shortrun fluctuations in stochastic factor demand systems the model endogenously generates asymmetric cyclical demand for capital and labour between peaks and troughs of the business cycle the empirical analysis of the model is based on quarterly time series data of the dutch manufacturing sector for the period 1971 i 1984 iv and annual time series data of the u k manufacturing sector for the period 1955 1986 i find important differences of adjustment speed of capital and labour inputs between expansionary and contractionary phases of the business cycle

scale economies and over capitalization in japanese electric utilities this paper presents empirical evidence on scale economies and overcapitalization in japanese electric utilities we employ the short run equilibrium model in which the variable cost function treats capital stock as a quasi fixed factor we specify the variable cost function as a translog form and estimate it using panel data of nine japanese electric utility firms during the period 1981 to 1985 our results show that eight of the nine firms experience scale economies in the short run but diseconomies in the long run and that seven firms significantly over capitalize as expected by the averch johnson effect

oil prices inflation and interest rates in a structural cointegrated var model for the g 7 countries sharp increases in the price of oil are generally seen as a major contributor to business cycle asymmetries moreover the very recent highs registered in the world oil market are causing concern about possible slowdowns in the economic performance of the most developed countries in this paper a structural cointegrated var model has been considered for the g 7 countries in order to study the direct effects of oil price shocks on output and prices and the reaction of monetary variables to external shocks our results can be summarized as follows i a stationary money demand as suggested by the classic theory of money can be identified for most countries ii according to the estimated coefficients of the structural part of the model for all countries except japan and u k the null hypothesis of an influence of oil prices on the inflation rate cannot be rejected inflation rate shocks are transmitted to the real economy by increasing interest rates iii impulse response analysis suggests for most countries the existence of an instantaneous temporary effect of oil price innovations on prices iv impulse response functions indicate different monetary policy reactions to inflationary and growth shocks v the simulation exercises directed to estimate the total impact of the 1990 oil price shock indicate that for some countries u s a significant part of the effects of the oil price shock is due to the monetary policy reaction function for other countries canada france and italy however the total impact is offset at least in part by an easing of monetary conditions

imagined risks and cost benefit analysis everyone recognizes substantial discrepancies between the public s rankings of hazards and those of the experts for example experts at the environmental protection agency think that hazardous waste sites pose mediumto low risks to the public while indoor air pollution poses a high risk yet public perceptions have driven policy to focus on hazardous waste sites rather than on indoor air quality stephen breyer 1993 pp 19 20 whose beliefs should determine government policy when the public s beliefs differ from those of the experts the problem evaporates if the public perhaps recognizing its inability to deal with complex technical issues entrusts risk assessment to the government and its experts but what if the public perhaps distrusting government and experts is unwilling to leave risk assessment to the experts paul portney 1992 p 131 posed a version of this whose beliefs question succinctly in his fable trouble in happyville

assessing energy price induced improvements in efficiency of capital in oecd manufacturing industries to assess how capital stocks adapt to energy price changes it is necessary to account for the impacts on different vintages of capital and to account separately for price induced and autonomous improvements in the energy efficiency of capital stock the results of econometric analysis for five manufacturing industries in 19 oecd countries between 1990 and 2005 indicate that higher energy prices resulted in smaller energy use due to both improved energy efficiency of capital stock and reduced demand for the energy input the investment response to energy prices varied considerably across manufacturing industries being more significant in energy intensive sectors the results of policy simulations indicate that a carbon tax can deliver significant reductions in energy consumption in the medium run with modest declines in energy using capital stock

public investment and industry incentives in life science research life science research has shifted rapidly from the public to the private sector raising questions about government s remaining role we shed light on the issue by employing a dynamic investment response model to examine the public s impact on industry life science research effort and success we find that government expenditures in both basic biological research and agricultural and medical science create substantial spillovers for private firms the spillovers are unfortunately partly nullified by government competition for scarce research inputs yet even after accounting for such competition public investment has been strongly complementary to private investment indeed opportunities created through public research are the principal source of growth in industry life sciences copyright 2007 oxford university press

an examination of the equilibrium specification and structure of production for canadian telecommunications multiple output models of canadian telecommunications production are estimated under different production equilibria a specification test is conducted between the short and long run equilibrium models and the long run equilibrium is rejected in order to capture the nature of the disequilibrium a dynamic cost of adjustment model is estimated for bell canada there are significant adjustment costs and it is estimated that for 1 00 of marginal capital costs the carrier must incur an additional cost of 0 30 to install the new capital into the production process

a dynamic analysis of interfuel substitution in u s industrial energy demand using data for 1960 92 to analyze interfuel substitution in the u s industrial sector a dynamic linear logit model is shown to provide superior global properties than a comparable dynamic translog model confirming earlier static results by t j considine 1989 the linear logit model provides a direct unbiased estimate of the rate of dynamic adjustment indicating a median response lag of less than two years excluding fuels used for nonenergy purposes yields larger estimates of the price elasticities for coal and oil and indicates generally greater potential for interfuel substitution than when using aggregate data

on the dynamic effects of oil price shocks a study using industry level data abstract this paper analyzes the effects of oil price shocks on demand and supply in various industries the impulse responses of identified var models indicate that for industries that have a large cost share of oil such as petroleum refinery and industrial chemicals oil price shocks mainly reduce supply in contrast for many other industries with the automobile industry being a particularly important example oil price shocks mainly reduce demand the paper suggests that oil price shocks influence economic activities beyond that explained by direct input cost effects possibly by delaying purchasing decisions of durable goods

determination of employment with wage and price speculation the purpose of this paper is to investigate whether aggregate fluctuations in employment may be explained within a market clearing framework as intertemporal substitution in labor supply and demand an intertemporal substitution model for the firm is derived this model is estimated with a lucas rapping type supply equation empirical results with finnish data lend support to the intertemporal substitution model particularly concerning the demand function specification on the other hand the results for the supply equation are somewhat mixed being rather sensitive to the dynamic specification

international transmission of anticipated inflation under alternative exchange rate regimes this paper studies the international transmission of anticipated inflation a two country two good two currency cash in advance model is used to examine analytically and numerically the consequences of changes in a country s inflation rate domestic monetary policy influences real activity at home through an inflation tax channel these real effects are transmitted to the foreign country via fluctuations in the real exchange rate under a flexible nominal exchange rate inflation is a beggar thy neighbor policy under a fixed nominal exchange rate each country suffers a welfare loss when one country inflates the quantitative results are fairly insensitive to variations in the cash credit mix used to finance investment expenditures 2001 elsevier science ltd all rights reserved

the general equilibrium costs and impacts of oil price shocks in newfoundland and labrador abstract the 2014 2015 dramatic drop in world oil prices had devastating impacts on a global scale we analyse economic costs and impacts of a negative oil price shock following the 2014 2015 decrease in oil prices on the provincial economy of newfoundland and labrador canada we use a dynamic computable general equilibrium model to estimate a drop in oil prices by inputting the estimated effect as a direct impact to royalties which are the land input in the oil and gas sector of the provincial economy we provide sensitivity to account for the duration and magnitude of the shock as well as the timing of recovery our results suggest that a shock in the price of oil will have its most significant impact on gdp in the initial years over the first five years the reduction in gdp due to this shock would be roughly 2 1 of gdp in our most realistic shock scenario but could be much higher in other scenarios considered a sharp drop in gdp over the first five years will be mitigated somewhat in the long run as the growth in oil prices rises however negative long run impacts to gdp persist due to the oil price shock in 2014 2015 and will worsen if there is a prolonged shock

the intertemporal dimension of neoclassical production theory abstract the aim of this survey paper is to provide a guide to the literature on optimal dynamic factor demands to the non specialist reader interested in applied work we start with the distinction between variable and quasi fixed factors of production and use these to characterize the firm s temporary equilibrium we then review the optimal intertemporal behaviour of the firm using the notion of adjustment costs as a means to solve the firm s optimization problem this process gives rise to a system of interrelated dynamic factor demands in a flexible accelerator format theoretical difficulties and empirical limitations of this model are discussed this fact leads us to review the theory of intertemporal duality we next analyze the issue of expectations in this class of dynamic models a section reviewing the empirical work on dynamic factor demands follows after which we offer some concluding remarks

quasi fixed inputs in u s and japanese manufacturing a generalized leontief restricted cost function approach in this paper a generalized leontief variable cost function is develope d which permits analytical derivation of steady state levels of quasi fixed inputs and capacity output and does not require specification of a numeraire input this framework is then used to evaluate the fa ctor demand patterns of japanese and u s manufacturing based on bot h one quasi fixed capital input and two quasi fixed capital and la bor input specifications and both static and dynamic optimization t he findings provide evidence of considerable flexibility of demand re sponses in japan which may have contributed to japan s relatively st rong economic performance in the volatile 1970s copyright 1988 by mit press

productivity growth in u s agriculture under dynamic adjustment a dynamic measure of productivity growth adjusted for deviations from the long run equilibrium is established within an adjustment cost framework an empirical application to u s agriculture is presented which permits identifying the dynamic linkages between technical change and productivity growth in u s agriculture total factor productivity as dynamically measured grew at 1 50 per annum the combined effect of scale quality adjusted input growth and long run disequilibrium input use contributes only 3 44 of the growth while technical change dominates the growth of total factor productivity

dynamic factor demand equations in u s and canadian agriculture abstract this research provides one of the first empirical estimates of a data based dynamic factor demand model for american and canadian agriculture models such as these deserve more widespread use in the empirical analysis of agriculture these models have the advantage that they do not impose inappropriate dynamics on the data rather they permit the data to select the appropriate dynamics we use a model originally developed by anderson and blundell this model is a general first order dynamic model which contains as testable hypothesis several simpler models this model permits us to estimate the long run agricultural production structure as a subset of the dynamic parameter estimates we will test this long run structure for symmetry homotheticity and neutral technical change the estimated models may be used to test for three alternative dynamic structures in the limit dynamics may not be needed and we can test for the static long run equilibrium model two intermediate cases are the autoregressive and the partial adjustment models which are simpler than the general model but still include dynamics our results suggest that the long run equilibrium model is unsatisfactory in both countries a dynamic model is needed in both countries the two more restricted dynamic models are rejected the general dynamic model is required in canada the long run equilibrium structure is homothetic with neutral technical change in the united states homotheticity is also accepted but neutral technical change is rejected

rebound directed technological change and aggregate demand for energy abstract we analyse the long run role of energy in aggregate production the factor share of energy has been remarkably constant despite the relative decline in the price of energy we analyse possible explanations for this observation ruling out the idea that endogenous directed technological change has led to a failure of energy augmenting technology to keep pace with labour augmenting technology instead we propose a model in which a combination of income and substitution effects has driven both shifts in consumption patterns towards existing energy intensive goods and the emergence of new such goods

recursive factor of production interrelations and endogenous cycling a multivariate linear rational expectations equilibrium version of the lucas prescott investment model is developed to study the behavior of factors of productions with recursive interrelations the connection between these interrelations and endogenous cycling is established in a testable way maximum likelihood estimates using annual postwar aggregate u s manufacturing data provide strong evidence of capital labor interrelations that induce a labor overshooting type of endogenous cycling this raises questions for the methodology of current real business cycle models which rule out the possibility of such interrelations copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

expectations and factor demand this paper develops and estimates a model of interrelated factor demand with rational expectations in the presence of internal adjustment costs invariant technological parameters are distinguished from the firm s adjustment parameters which change when the exogenous processes faced by the firm change the capital demand equation is derived by solving the euler equations which stem from minimization of the present value of costs future exogenous variables are supplied from solutions of arima equations the model is tested on postwar quarterly data for u s manufacturing a regime change in the process for energy prices is simulated as is a temporary suspension of the investment tax credit

real flexibility and financial structure an empirical analysis i examine the empirical relation between real flexibility and financial structure i test whether real flexibility increases debt capacity by lowering default risk and making assets more marketable or decreases debt capacity by facilitating risk shifting and asset substitution i measure real flexibility as the sensitivity of marginal production and investment decisions to variations in the economic environment i find that financial leverage is negatively related to production flexibility but positively related to investment flexibility this split in results suggests that although asset substitution facilitated by investment flexibility can be prevented contractually risk shifting facilitated by production flexibility is intractable copyright 2003 oxford university press

regulation in happyville how does risk perception affect risk regulation happyville is a society in which citizens wrongly believe that the drinking water supply is contaminated we discuss conditions under which a benevolent director of environment protection would invest in a water cleanup technology this holds if the director is populist namely if he maximises social welfare based on citizens pessimistic beliefs more surprisingly investment in the water cleanup technology may occur if the director is paternalistic in the sense that he maximises social welfare based on his own beliefs the reason is that he must take into account citizens responses to regulation

factor substitution in u s manufacturing does plant size matter we use micro data for 10 412 u s manufacturing plants to estimate the degrees of factor substitution by industry and by plant size we find that 1 capital labor energy and materials are substitutes in production and 2 the degrees of substitution among inputs are quite similar across plant sizes in a majority of industries two important implications of these findings are that 1 small plants are typically as flexible as large plants in factor substitution consequently economic policies such energy conservation policies that result in rising energy prices would not cause negative effects on either large or small u s manufacturing plants and 2 since energy and capital are found to be substitutes the 1973 energy crisis is unlikely to be a significant factor contributing to the post 1973 productivity slowdown

effort wages and the international division of labor this paper embeds variable effort into a traditional two sector heckscher ohlin model of international competition effort enters a production function as total factor productivity and on the assumption that effort does not affect capital depreciation the capital cost savings from high effort operations are passed on to workers the labor market thus offers a set of contracts with higher wages compensating for higher effort this has implications for growth openness minimum wages collective bargaining public support of education efficiency of state enterprises the distribution of wealth childbearing and much more

corporation tax asymmetries and investment evidence from uk panel data theoretical work has emphasised the potentially powerful impact of corporation tax asymmetries on investment behaviour but empirical work has mainly been confined to the measurement of effective tax rates this paper uses panel data from 597 u k companies to ask are tax asymmetries important to understanding observed investment behaviour an optimising investment model is developed and estimated both as a q equation and a euler equation in which the cost of capital appears careful modelling of asymmetries does not noticeably improve the empirical performance of these equations possible explanations are discussed

r d production structure and rates of return in the u s japanese and german manufacturing sectors a non separable dynamic factor demand model abstract the focus of this paper is an analysis of the production structure the demand for factor inputs and the rates of return in the manufacturing sector of three major industrialized countries the united states japan and germany the analysis is based on a dynamic factor demand model with two variable inputs labor and materials and two quasi fixed inputs capital and rd also for all countries the speed of adjustment for capital is found to be higher than that for r d

energy price energy efficiency and capital productivity empirical investigations and policy implications abstract the immediate effect of carbon pricing policy is to raise energy costs which in turn reduces energy consumption either through induced capital under utilization or investments in new energy efficient capital the latter mechanism which implies improvements in energy efficiency is realized in the long run while the former which has implications for capital productivity tends to occur in the short run we employ panel vector autoregressions as well as co integration and error correction techniques to identify these short and long run relationships including their differences across canadian industries

dynamic factor demand systems and the adjustment speed towards equilibrium most models of factor demand can be grouped into two categories the first is static models which consistently account for substitution among several factors without imposing a priori restrictions on the production structure such models utilize flexible functional forms to represent the underlying technology however they impose strict restrictions on the dynamic behaviour of the technology in that either full or partial static equilibrium is assumed studies in this group providing a rationale for modelling some input factors as fixed in the short run include brown and christensen 1980 and kulatilaka 1985 a partly dynamic approach was suggested by pindyck and rotemberg 1983 who explicitly model the adjustment costs of some factors however the underlying production technology is still regarded as static the second category consists of dynamic models that incorporate cost of capital stock adjustments such models often apply a single factor and typically impose ad hoc assumptions in both categories the researcher selects the inputs which are not regarded as completely variable mostly on the basis of a priori assumptions in this paper we will focus on implications of a dynamic modelling of factor demand systems it is clear that a firm will adjust to price changes only when it is profitable to do so accordingly the cost of adjustment may serve as a rationale for why different factors may adjust towards equilibrium at different speeds hence when we are able to model the adjustment speed of the different factors we are also able to parametrically test for the

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

estimation of the depreciation rate of physical and r d capital in the u s total manufacturing sector i introduction numerous studies on production and cost the sources of productivity and endogenous growth have recognized the pivotal role of the physical capital stock studies at various levels of aggregation over assets and industries have emphasized the crucial role of investment in plant and equipment in the growth of demand and productive capacity it is clearly recognized by economists and policymakers that knowledge capital approximated by rd 1986 to measure the depreciation rates of the stock of rd 1980 in the literature on dynamic demand models such an approach was first adopted by epstein and denny 1980 and more recently by kollintzas and choi 1985 for a single capital good and on a theoretical level in bernstein and nadiri 1987a 1987b the paper is organized as follows the specification of the model is presented in section ii section iii is devoted to a discussion of the data and to the presentation of the parameter estimates of the model in section iv we present the empirical results for the depreciation rates for physical and r d capital and compare them with those reported in the literature we compare the physical capital stock estimates generated by our model with the official capital stock estimates produced by u s department of commerce bureau of economic analysis in this section we also present our estimates of the decomposition of gross investment into replacement and expansion investment for both physical and r d capital these decompositions are important from the vantage point of public policy analysis

short and long term equilibria relationships between first and third generation dynamic factor demand models abstract first generation dynamic models of input demands are theoretically inferior to third generation models yet their simplicity makes them attractive for estimation purposes moreover first generation models can be shown to be generically related to third generation models and under certain assumptions input demand expressions in a third generation model collapse to those of the first generation seemingly offering a short cut for estimation however empirical comparisons suggest that first generation specifications do not afford a reasonable approximation to input functions embedded in more complex third generation models furthermore the reduced form coefficients do not permit identification of third generation model structures

cross sectional and time series biases in factor demand studies explaining energy capital complementarity engineering and econometric studies of the ability to substitute energy for capital often give different results engineering studies typically show substitution to be normal while many econometric studies show energy and capital to be complements berndt and wood recently 13 attempted a reconciliation by showing that there was no logical conflict between two factors being gross substitutes but net complements there is an alternative reconciliation based on differing output definitions in the engineering and econometric literatures in addition differences between cross sectional and time series studies appear to be due to holding different output measures constant the econometric studies that found substitution were cross sectional studies comparing either different countries 25 47 or comparing different u s states 3 27 28 the work of field and grebenstein 19 for physical capital appears to be an exception in contrast the studies based on time series data whether static models of the u s 2 12 31 or dynamic models of the u s economy 6 11 16 45 a generalized box jenkins function for the u s 9 or time series data for the netherlands 37 show complementarity the pooled time series cross sectional canadian data of fuss 20 and denny fuss and waverman 16 do not show a clear pattern the differences among estimates of energy capital substitution are large enough to cast grave doubt on the basic hypothesis that elasticities of substitution can be measured econometrically these results are embarrassing for econometrics and cry out for explanation this consistent pattern of opposite answers from cross sectional and timeseries studies suggests either that different things are being estimated or systematic biases exist in one or both methodologies the proposed resolution involves a failure to control for product mix differences which biases the two methodologies in opposite directions energy capital substitution elasticities will be overestimated in cross sectional studies in contrast a failure to control for product mix along with other statistical problems biases time series studies towards complementarity thus the difference in estimates is argued to be due to biases in opposite directions a similar problem has been pointed out by berndt 4 who notes that estimates of capitallabor substitution are much greater for cross sectional studies than for time series studies this will also be argued to be due to failure to control for product mix the basic points to be made in this paper include

the mis specification of production costs in production smoothing models estimation results obtained with production smoothing models are often imprecise and sensitive to normalisation rules it is argued here that production costs in these models can be better specified in terms of production factor costs the resulting factor demand model with inventories leads to more efficient estimation results and normalisation rules become even redundant furthermore the smoothing role of inventories with respect to production factors is discussed c 1997 elsevier science s a

structural models of dynamic factor demands with nonstatic expectations an empirical assessment of alternative expectations specifications until recently little literature existed on incorporation of nonstatic price and output expectations into empirically implementable factor demand models for example the vast literature on flexible functional forms is almost completely characterized by static expectations on prices and output as well as instantaneous adjustment to desired levels of demand more recent studies have incorporated increasingly complex theoretical and econometric structures the literature along the lines of fuss 1976 and berndt fuss and waverman 1979 bfw incorporates endogenous determination of dynamic adjustment structure but retains a static expectations assumption on the other hand most current rational expectations models following the lead of thomas sargent and robert lucas make very restrictive simplifying assumptions on the deterministic economic structure in order rigorously to specify the complex stochastic structure implied by the rational expectations assumption a thrid category of model represented by pindyck and rotemberg 1983 relies on an instrumental variable approach to ensure error orthogonality and hence consistency with the rational expectations assumption this procedure allows for a more complete structural specification but does not explicitly incorporate an expectations process this paper represents a step toward a synthesis of the structural and stochastic approaches to dynamic input demand modeling with emphasis on both theoretical foundations and empirical tractability in this approach approximations to rational expectations and certainty equivalence are used explicitly to incorporate anticipatory behavior of firms into the structural model of dynamic factor demands theoretically this is accomplished without sacrificing rich economic structure a structural factor demand model is developed which includes both stock relationships and expectations formation based on an explicit dynamic optimization framework empirically the focus is on avoiding complex stochastic structures that are of little use to most empirical researchers all of the expectational models are empirically straightforward to implement and yet incorporate the important theoretical and empirical structure required for detailed analysis of short and long run behavior two issues must be addressed to formalize and implement the model the

dynamic behavior of capital accumulation in a cash in advance model abstract this paper analyzes the dynamic behavior of capital accumulation in stockman s cash in advance model if the cash in advance constraint applies only to consumption then money is superneutral along the transition path as well as in the long run alternatively if the cash in advance constraint applies to gross investment as well as consumption then a permanent increase in the rate of monetary growth reduces the steady state capital stock the effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology

liberalisation consumption heterogeneity and the dynamics of energy prices in this study the methodology var and the cointegration analysis are used to examine the dynamic interaction among the energy prices of the competitor energy sources in a liberalised market data from the uk market were applied and models for the residential and industrial sectors were developed our results indicate the existence of long run relationships between the energy prices before and after the liberalisation implying the possibility of substitution among the different forms of energy however the results appear to be also largely influenced by external variables not included in the models that may be reducing the importance of the energy prices over their own evolution and offsetting the basic substitution relationships the general results of the impulse response functions both for the residential and industrial sectors present low statistical significance which seems to be due to the still slow rate of adjustment of the energy market to price changes along with the immaturity of the liberalisation process taking into consideration the results some routes for future research are pointed out namely the need to include in the analysis variables which would proxy the general state of the economy

cost specification and firm behaviour in a hotelling model of resource extraction in applied resource economics much attention has been focused on the ability of the hotelling model to explain observed firm behavior in this paper a preliminary specification search is performed to determine the appropriate cost function parameterization for the firms in the sample before proceeding to the estimation of the euler equation once a cost function specification is chosen the corresponding euler equation is estimated via the generalization method of moments gmm which allows for better estimates of the euler equations than in previous studies even with the preliminary specification search and the use of gmm estimation the behavior of the panel of fourteen canadian copper mining firms in the data set examined does not seem to be consistent with the basic hotelling model used

the own wage elasticity of labor demand a meta regression analysis firms labor demand responses to wage changes are of key interest in empirical research and policy analysis however despite extensive research estimates of labor demand elasticities remain subject to considerable heterogeneity in this paper we conduct a comprehensive meta regression analysis to re assess the empirical literature on labor demand elasticities building on 942 elasticity estimates from 105 different studies we identify sources of variation in the absolute value of this elasticity heterogeneity due to the theoretical and empirical specification of the labor demand model different datasets used or sectors and countries considered explains more than 80 of the variation in the estimates we further find substantial evidence for the presence of publication selection bias as estimates of the own wage elasticity of labor demand are upwardly inflated

an econometric analysis of fluctuations in aggregate labor supply and demand the paper contains a simple equilibrium model of the labor market the supply function allows for intertemporal substitution in response to real wage fluctuations and the demand function allows for adjustment costs on employment the supply and demand functions both solve quadratic partial adjustment problems driven by rational expectations about future real wages the market equilibrium also solves a partial adjustment problem driven by rational expectations about future preference and technology shocks two related issues are emphasized the identification of dynamic labor supply and demand functions and the theoretical interpretation of serial correlation in employment and real wages when the supply and demand shocks are assumed to be ar 1 processes which are not causally related the model delivers a simple structure for the equilibrium process for employment and real wages which is a restricted var 2 this simple structure facilitates the interpretation of summary statistics on the time series properties of observed employment and real wage series the supply and demand functions can both be locally identified using only employment and real wage data an illustrative application is presented using u s manufacturing data for the period 1948 1971

capital maintenance and depreciation over the business cycle abstract this paper develops and estimates a stochastic general equilibrium model with capital maintenance which affects endogenously the depreciation rate of capital the estimate of maintenance series is found to track survey based measures for canada quite closely and to generate the procyclical pattern of maintenance observed in the data we use our model estimates to infer the time profile of equipment capital depreciation in canadian and us manufacturing the depreciation rate is estimated to be volatile and highly procyclical in both countries

willingness to pay for improved air quality in sweden the aim of the paper is to quantify individual willingness to pay measures of improved air quality in sweden by using the contingent valuation method cvm such measures are important for policy makers when deciding about public investments and policy instruments in order to regulate environmental impacts e g from road transportation and industry the mean willingness to pay wtp for a 50 reduction of harmful substances where the respondents live and work was about 2000 sek year which is of the same order of magnitude as earlier stated preference studies in nordic countries most parameters in the econometric analysis had the expected sign wtp was increasing in income wealth and education it was larger for men members of environmental organizations people living in big cities which are on average more polluted and people who own their house or apartment it was lower for retired people however the additional wtp for people in big cities although significantly higher than for other people

capacity utilization and depreciation in use in this paper the effect capacity utilization has on the depreciation of capital goods is studied starting from a quadratic approximation to a normalized short run cost function expressions for the optimal rate of capacity utilization the demands for labour and energy and for investment are obtained investment is a function of past capital stock expected future capital stock expected future relative prices and expected future depreciation rates expectations are modelled via instruments the model is tested using us total manufacturing quarterly data depreciation dependent upon usage is found to be both statistically and economically significant

an adjustment cost model of long term employment in japan summary a dynamic factor demand model is presented which pays special attention to the prevalence of a longterm employment relationship in japan the model is based on the representation of technology by a variable cost function with adjustment costs for employment and capital stock where the variable cost consists of the sum of overtime costs and materials costs with employment being quasi fixed and scheduled hours institutionally regulated short run adjustments are mostly made by overtime hours application to a time series data on the japanese electrical machinery industry indicates quasi fixity of capital and employment and reproduces short run overshooting of overtime hours to compensate for the sluggish adjustment of employment

economic fluctuations market power and returns to scale evidence from firm level data recent research on aggregate fluctuations coupled with ongoing work in industrial organization has renewed interest in the existence magnitude and cyclical pattern of market power and the extent of increasing returns to scale by exploiting restrictions from dynamic theory and information from financial markets we present a framework for generating quantitative evidence on market power and returns to scale tailoring the econometric model to firm level panel data we calculate the percentage differential between price and marginal cost the lerner index in terms of the parameters from the econometric system results for firms in eleven industries indicate that there is a great deal of heterogeneity in the extent of market power industries with significantly positive lerner indices tend to have substantial increasing returns in the production technology we find that there is only a modest relation between our estimated lerner indices and traditional measures of market power and that when market power varies temporally it is usually procyclical thus variations in the markup of price over marginal cost may help dampen aggregate economic fluctuations

carbon leakage revisited unilateral climate policy with directed technical change using a stylized theoretical model we argue that current economic analyses of climate policy tend to over estimate the degree of carbon leakage as they abstract from the effects of induced technological change we analyse carbon leakage in a two country model with directed technical change where only one of the countries enforces an exogenous cap on emissions climate policy induces changes in relative prices that cause carbon leakage through a terms of trade effect however these changes in relative prices also affect the incentives to innovate in different sectors this leads to a counterbalancing induced technology effect which always reduces carbon leakage we therefore conclude that the leakage rates reported in the literature may be too high as these estimates neglect the effect of price changes on the incentives to innovate

finance and growth for microenterprises evidence from rural china using a survey dataset of chinese rural households we find that access to external finance is positively associated with the decision to become entrepreneur and the initial investment for microenterprises also we find that use of informal finance especially financing from friends and family is positively associated with sales growth of microenterprises with employees but not of self employed we do not find any significant relationship between the use of formal finance and firm growth our findings underline the importance of finance for entrepreneurship and microenterprise growth and the role of informal finance in the absence of efficient formal financial institutions

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

inventories employment and hours abstract this paper develops a model that integrates inventory and labor decisions we extend a model of inventory behavior to include a detailed specification of the role of labor input in the production process distinguishing between employment hours and effort per worker we estimate jointly the euler equations for inventories and employment a labor compensation schedule and an hours requirement function with the cross equation restrictions imposed the econometric results shed light on several important topics including the shape of the marginal cost of output the role of labor hoarding as an explanation of pro cyclical productivity and the persistence of inventory stocks

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

technical efficiency and u s manufacturing productivity growth this paper establishes that new inputs increase technical efficiency levels for u s manufacturing over the period 1950 1998 intermediate inputs exhibited higher rates of efficiency growth than labor and capital efficiency adjusted productivity growth annually averaged 0 4 percentage points above measured growth the gap between efficiency adjusted and measured productivity growth arises from aggregating inputs using observed and not efficiency adjusted cost share weights in the calculation of measured growth specifically the decline in efficiency adjusted material cost shares compared to the measured shares coupled with the comparatively high material input growth rate was the main source of the productivity gap

asymmetric adjustment of dynamic factors at the firm level presents a study which addressed the deficiencies of previous studies the specification and estimation in the modeling of asymmetry and zero gross investment in the agricultural industry reference to previous studies on asymmetry information on the standard dual model results of the study

dynamic factor demands and market structure under rational expectations some estimates for the italian manufacturing system this paper deals with a dynamic model of the behaviour of firms under rational expectations the adjustment cost framework is followed to describe production technologies the objective of firms is to maximize the stream of future profits under rational expectation first order conditions for the optimum are derived with respect to input demands and one output supply the output market structure is modelled in order to test price taking behaviour the adjustment costs of quasi fixed inputs are internal and interrelated the model is estimated for the italian manufacturing system with encouraging results

on the role of domestic and international financial cyclical factors in driving economic growth abstractwe investigate the effects of domestic and international financial cyclical factors on the us business cycle over the period 1890 2013 using an augmented stochastic version of the neoclas

price margins and capital adjustment canadian mill products and pulp and paper industries abstract the purpose of this paper is to estimate a model incorporating non competitive behaviour in product and factor markets in addition capital accumulation is subject to adjustment costs so that firms are not constrained to be in long run equilibrium the model is applied to two major canadian manufacturing industries pulp and paper and mill products the results show for both industries in each of three product markets and the wood input market that there is competitive behaviour in addition the industries are not in long run equilibrium as marginal adjustment costs cause marginal profit to exceed the rental rate on capital with the industries exhibiting short run competitive behaviour in product and factor markets new estimates are derived for scale economies and rates of technological change unlike the results from other studies both industries exhibit small scale economies and positive rates of technological change

consistent tariffs with dynamic supply response abstract this paper models a large importer of a competitively produced good for which there are nonlinear adjustment costs in production if producers have rational expectations and the importer is unable to make a credible commitment regarding future tariffs market power may be disadvantageous this is more likely to occur when the difference between short and long run elasticities of supply are large this result depends on the particular subgame perfect equilibrium that is chosen if producers were capable of strategic behavior other equilibria which rely on trigger strategies would be reasonable and market power could no longer be disadvantageous

dynamic factor demands under rational expectations we model the industrial demands for structures equipment and blue and white collar labor in a manner consistent with rational expectations and stochastic dynamic optimization in the presence of adjustment costs but allowing generality of functional form we represent the technology by a translog input requirement function that specifies the amount of blue collar labor needed to produce an output level given quantities of three quasi fixed factors nonproduction workers equipment and structures a complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic euler equations we find adjustment costs are small in total but large on the margin and differ considerably across factors

estimating dynamic dual models under nonstatic expectations in this paper we derive a system of equations depicting agents dynamic decision rules under nonstatic price expectations based on the adjustment cost model of the firm the integrability conditions which can serve to guide the specification of flexible functional forms are established a two stage econometric model permitting empirical examination of both the expectations formation process and the dynamic structure of the industry is estimated using two different data series for u s production agriculture the estimation results suggest evidence of the presence of nonstatic price expectations in dynamic dual models for u s production agriculture

the short run tobin effect in a monetary optimizing model in an economy in which households face a cash in advance constraint the nominal interest rate acts like a tax on consumption to the extent that investment is financed from current earnings and so escapes the interest rate tax households will defer their consumption when the nominal interest rate is high a short run tobin effect results capital accumulates most rapidly when the interest rate is thought to be high relative to its past and future values

assessing a disaggregated energy input using confidence intervals around translog elasticity estimates the role of energy in the production of manufacturing output has been debated extensively in the literature particularly its relationship with capital and labor in an attempt to provide some clarification in this debate a two step methodology was used first under the assumption of a five factor production function specification we distinguished between electric and non electric energy and assessed each component s relationship with capital and labor second we calculated both the allen and price elasticities and constructed 95 confidence intervals around these values our approach led to the following conclusions that the disaggregation of the energy input into electric and non electric energy is justified that capital and electric energy and capital and non electric energy are substitutes while labor and electric energy and labor and non electric energy are complements in production and that capital and energy are substitutes while labor and energy are complements

tax policy and business fixed investment in the united states abstract this paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest the estimates suggest that taxes have played an independent role in affecting postwar u s investment behavior particularly for investment in machinery and equipment in addition the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous illustrative calculations using this technique based on the paper s empirical estimates suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period

monetary policy response to oil price shocks how should monetary authorities react to an oil price shock this paper shows that in a noncompetitive economy policies that perfectly stabilize prices entail large welfare costs hence explaining the reluctance of policymakers to enforce them the policy trade off is nontrivial because oil energy is an input to both production and consumption as welfare maximizing policies are hard to implement and communicate i derive a simple interest rate rule that depends only on observables but mimics the optimal plan in all dimensions the optimal rule is hard on core inflation but accommodates oil price changes

energy transition under irreversibility a two sector approach in this paper we analyze the optimal energy transition of a two sector economy energy and final goods with exhaustible oil reserves a renewable source of energy and a pollution threat the latter corresponds to a pollution threshold above which a part of the capital is lost following flooding for instance we show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources then crosses the pollution threshold and therefore loses a part of its capital at the end the sole adoption of the renewable energy is optimal only in the long run this result is in line with the asymptotic energy transition arguments stating that the transition to clean energy may happen only in the long run we also show that economy reduces the use of energy resource as long as the productivity of capital and energy services is high therefore public policies should promote investments in energy innovation that targets productive sector home appliances and buildings and helps to save both money and energy we extend the present model to allow for additional investment in energy saving technologies our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society for policy implications economic instruments such as taxes on dirty energy subsidies on clean energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition this is particularly important for developing countries that mostly rely on polluting energy resources and are the most vulnerable to climate change but those economic instruments should be carefully designed in line with the asymptotic energy transition result

financial structure production and productivity evidence from the u s food manufacturing industry this study integrates production and financing to examine the impacts of financial structure change on the production profitability and productivity growth in the u s food manufacturing industry empirical results show that during the period covered by this study agency cost associated with increased debt use by this industry negatively affected its output growth input demand profitability and overall productivity growth dividend payment positively contributed to the production and performance of this industry via signaling benefit however the negative effects of increased debt use by this industry far outweighed the positive contribution of dividend payment the u s food industry achieved a 0 9 average annual productivity growth which came primarily from technological progress and capital adjustment the rapid increase in debt use by this industry was responsible for slowing down the pace of productivity growth via its negative contribution to the total factor productivity growth capital expansion was the principal driver of output growth and profitability in this industry

attitudes toward catastrophe in light of climate change and other global threats policy commentators sometimes urge that society should be more concerned about catastrophes this paper reflects on what society s attitude toward low probability high impact events is or should be we first argue that catastrophe risk can be conceived of as a spread in the distribution of losses based on this conception we review studies from decision sciences psychology and behavioral economics that explore people s attitudes toward various social risks contray to popular belief we find more evidence against than in favor of catastrophe aversion the preference for a mean preserving contraction of the loss distribution and discuss a number of possible behavioral explanations next we turn to social choice theory and examine how various social welfare functions handle catastrophe risk we explain why catastrophe aversion may be in conflict with equity concerns and other regarding preferences finally we discuss current approaches to evaluate and regulate catastrophe risk

spillovers from publicly financed r d capital in high tech industries abstract this paper employs a dynamic production model to examine the short run effects of publicly financed r d capital on the cost structure of six high tech us manufacturing industries the results show that given an industry s output publicly financed r d capital reduces the variable production cost in all industries in addition an increase in publicly financed r d causes output to increase implying that producers as well consumers are better off despite the presence of strong monopoly power in some industries a low bound for the social rate of return to publicly financed r d is also calculated

interrelated factor demands for manufacturing a dynamic translog cost function approach abstract in this paper we report the results of estimating a joint model for labour capital and energy using the transcendental logarithmic cost function of christensen jorgenson and lau 1973 this allows us to determine both the own price and cross elasticities of substitution between labour capital and energy we combine a model of factor shares with a dynamic adjustment process for each factor we also impose on the cross equation restrictions necessary to provide additivity homogeneity and symmetry since the covariance matrix in systems of share relationships is singular we follow the suggestions of anderson and blundell 1982 and employ a mullivariate error corrrection model the results suggest that additivity symmetry and homogeneity restrictions do hold and that there are short run increasing returns to scale

how do banks adjust to changing input prices a dynamic analysis of u s commercial banks before and after the crisis abstract the 2000 2013 period was characterized by substantial regulatory monetary and technological change especially after the onset of the global financial crisis this study assesses the total impact of these policy shifts and technological changes on u s commercial banks short run and long run substitution elasticities an endogenous break test divides the sample into a pre crisis period and a post crisis period during the former period banks inputs tend to be inelastic substitutes after the onset of the crisis particularly the long run substitutability of most input factors decreases to even lower levels due to changes in both cost technology and economic conditions at the same time banks response to input price changes becomes more sluggish hence especially after the onset of the crisis banks have little flexibility regarding input factor usage and are thus sensitive to input price changes from a cost perspective

endogenous growth and the welfare costs of inflation a reconsideration abstract many economists share the view that the welfare costs of moderate rates of money growth cum inflation are generally modest or small this paper investigates the sensitivity of this result to alternative model specifications and behavioral assumptions we first construct a monetary endogenous growth model with romer s 1986 style of capital externality and find that the real growth rate effect is substantially large thus lending to much higher welfare costs than those in existing studies to investigate the robustness of the result we then conduct a series of experiments by exploring the romer model with an alternative specification of money demand and a class of other endogenous growth models it is demonstrated quite consistently that our finding is confirmed in these models

technological choices and regulation the case of the canadian manufacturing sectors the economic environment in which canadian manufacturing firms operate has changed substantially over the last 40 years technological changes new regulations deregulation and exogenous economic shocks all have been important aspects of this economic environment in this article we show how to include such changes in the economic environment faced by the firms in a behavioural model that includes the investment decision of the firm under uncertainty assumptions regarding the expectation formation process and technology are kept minimal we estimate the effects of innovations such as the free trade agreement the foreign investment review agency and the federal environmental policy on the economic decisions of fifteen canadian manufacturing sectors jel classification d24 choix de technologies et reglementation le cas des secteurs manufacturiers canadiens au cours des 40 dernieres annees l environnement economique des firmes manufacturieres canadiennes s est grandement transforme que ce soit a cause du changement technologique de la reglementation de vagues de dereglementation ou de chocs economiques exogenes les firmes ont du s adapter en modifiant leur technologie dans cet article nous montrons comment prendre en compte les changements de l environnement economique des firmes dans le cadre d un modele decisionnel de la firme en incertitude avec investissement les hypotheses concernant la technologie et les anticipations sont aussi generales que possible nous estimons l effet qu ont eu l accord de libre echange l agence de tamisage des investissements etrangers et la politique environnementale federale sur les choix de technologies des firmes de quinze secteurs manufacturiers canadiens