That Elusive Elasticity: A Long-Panel Approach To Estimating The Price Sensitivity Of Business Capital
The sensitivity of business capital formation to its user cost plays a key role in the analysis of many economic issues. Although this elasticity has been the subject of an enormous number of studies, a consensus remains elusive. We develop an estimation strategy that exploits panel data in an original way and avoids several pitfalls - difficult-to-specify dynamics, transitory time-series variation, and positively sloped supply schedules - inherent in investment equations that can bias the estimated elasticity. Results are based on an extensive panel containing 1,860 manufacturing and non-manufacturing firms. Our model generates a precisely estimated user cost elasticity of approximately 0.40. The method developed here may prove useful in estimating other structural parameters from panel datasets.
Year of publication: |
2002-01
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Authors: | Chirinko, Robert S. ; Fazzari, Steven M. ; Meyer, Andrew P. |
Institutions: | International Conferences on Panel Data |
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