Hostname: page-component-cd9895bd7-8ctnn Total loading time: 0 Render date: 2024-12-27T18:16:00.606Z Has data issue: false hasContentIssue false
  • English
  • Français

VAR INTERPRETATIONS OF HAAVELMO’S MARKET MODEL OF CAPITAL AND INVESTMENT

Published online by Cambridge University Press:  27 June 2014

Erik Biørn
Erik Biørn*
Affiliation:
University of Oslo
*
*Address correspondence to Erik Biørn, Department of Economics, University of Oslo, P.O. Box 1095 Blindern, 0317 Oslo, Norway; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

In the paper attempts are made to integrate two parts of Trygve Haavelmo’s work: investment theory and dynamic econometric models of interrelated markets. Specifically, the duality in the representation of the capital service price and the capital quantity in relation to the investment price and quantity are brought to the forefront and confronted with elements from simultaneous equation modeling of vector autoregressive systems containing exogenous variables (VARX), using linear four-equation models. The role of the interest rate and the modeling of the expectation element in the capital service price and the capital’s retirement pattern, and their joint effect on the model’s investment quantity and price dynamics are discussed. Stability conditions are illustrated by examples. Extensions relaxing geometric decay and ways of accounting for forward-looking behavior, including rational expectations, are outlined. Some remarks on the theory-data confrontation of this kind of model are given.

Type
ARTICLES
Information
Econometric Theory , Volume 31 , Issue 2: Haavelmo Memorial Issue: Part Two , April 2015 , pp. 195 - 212
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aldrich, J. (1989) Autonomy. Oxford Economic Papers 41, 15–34.CrossRefGoogle Scholar
Ando, A.K., et al. . (1974) On the role of expectations of price and technological change in an investment function. International Economic Review 15, 384–414.Google Scholar
Biørn, E. (1989) Taxation, Technology and the User Cost of Capital. North-Holland.Google Scholar
Biørn, E. (2009) Capital Decay and Tax Distortions: How to Abandon Exponential Decay and Benefit from It. Memorandum No. 27/2009, Department of Economics, University of Oslo.Google Scholar
Biørn, E. (2012) An Econometric Market Model of Capital and Investment Inspired by Haavelmo. Memorandum No. 11/2012, Department of Economics, University of Oslo.Google Scholar
Blanchard, O.J. & Kahn, C.M. (1980) The solution of linear difference models under rational expectations. Econometrica 48, 1305–1311.Google Scholar
Blundell, R., et al. . (1992) Investment and Tobin’s Q: Evidence from company panel data. Journal of Econometrics 51, 233–257.Google Scholar
Chirinko, R.S. (1993) Business fixed investment spending: Modeling strategies, empirical results, and policy implications. Journal of Economic Literature 31, 1875–1911.Google Scholar
Chow, G.C. & Reny, P.J. (1985) On two methods for solving and estimating linear simultaneous equations under rational expectations. Journal of Economic Dynamics and Control 9, 63–75.Google Scholar
Diewert, E. (2005) Issues in the measurement of capital services, depreciation, asset price changes, and interest rates. In Corrado, C., Haltiwanger, J., & Sichel, D. (eds.), Measuring Capital in the New Economy. The University of Chicago Press.Google Scholar
Eisner, R. & Nadiri, M.I. (1968) Investment behavior and neo-classical theory. Review of Economics and Statistics 50, 369–382.Google Scholar
Girshick, M.A. & Haavelmo, T. (1947) Statistical analysis of the demand for food: Examples of simultaneous estimation of structural equations. Econometrica 15, 79–110.CrossRefGoogle Scholar
Girshick, M.A. & Haavelmo, T. (1953) Statistical analysis of the demand for food: Examples of simultaneous estimation of structural equations. In Hood, W.C. & Koopmans, T.C. (eds.), Studies in Econometric Methods. Wiley.Google Scholar
Gourieroux, C., Laffont, J.J., & Monfort, A. (1982) Rational expectations in dynamic linear models: Analysis of the solutions. Econometrica 50, 409–425.Google Scholar
Haavelmo, T. (1938) The method of supplementary confluent relations, illustrated by a study of stock prices. Econometrica 6, 203–218.Google Scholar
Haavelmo, T. (1943) The statistical implications of a system of simultaneous equations. Econometrica 11, 1–12.CrossRefGoogle Scholar
Haavelmo, T. (1944) The probability approach in econometrics. Econometrica 12, supplement, 1–115.Google Scholar
Haavelmo, T. (1958) The role of the econometrician in the advancement of economic theory.Econometrica 26, 351–357.Google Scholar
Haavelmo, T. (1960) A Study in the Theory of Investment. University of Chicago Press.Google Scholar
Hicks, J. (1973) Capital and Time. Clarendon Press.Google Scholar
Hotelling, H.S. (1925) A general mathematical theory of depreciation. Journal of the American Statistical Association 20, 340–353.Google Scholar
Hsiao, C. (1997) Cointegration and dynamic simultaneous equations model. Econometrica 65,647–670.Google Scholar
Jorgenson, D.W. (1974) The economic theory of replacement and depreciation. In Sellekaerts, W. (ed.), Econometrics and Economic Theory. Essays in Honour of Jan Tinbergen, pp. 198–221. Macmillan.Google Scholar
Jorgenson, D.W. (1989) Capital as a factor of production. In Jorgenson, D.W. & Landau, R. (eds.), Technology and Capital Formation, pp. 1–35. The MIT Press.Google Scholar
Jorgenson, D.W. & Stephenson, J.A. (1967) Investment behavior in U.S. manufacturing, 1947-1960. Econometrica 35, 169–220.Google Scholar
Lütkepohl, H. (1996) Handbook of Matrices. Wiley.Google Scholar
Lütkepohl, H. (2005) New Introduction to Multiple Time Series Analysis. Springer.Google Scholar
Maccini, L.J. (1973) Delivery lags and the demand for investment. Review of Economic Studies 40, 269–281.Google Scholar
Nickell, S.J. (1978) The Investment Decision of Firms. Cambridge University Press.Google Scholar
Palm, F.C. (1986) Structural econometric modeling and time series analysis. Applied Mathematics and Computation 20, 349–364.Google Scholar
Pesaran, M.H. (1987) The Limits to Rational Expectations. Blackwell.Google Scholar
Quenouille, M.H. (1957) The Analysis of Multiple Time-Series. Hafner.Google Scholar
Salemi, M.K. (1986) Solution and estimation of linear rational expectations models. Journal of Econometrics 31, 41–66.Google Scholar
Spanos, A. (1989) On rereading Haavelmo: A retrospective view of econometric modeling. Econometric Theory 5, 405–429.CrossRefGoogle Scholar
Wallis, K.F. (1980) Econometric implications of the rational expectations hypothesis. Econometrica 48, 49–73.Google Scholar
Zellner, A. (1979) Statistical analysis of econometric models. Journal of the American Statistical Association 74, 628–643.Google Scholar
Zellner, A. & Palm, F. (1974) Time series analysis and simultaneous equation econometric models. Journal of Econometrics 2, 17–54.Google Scholar