Research on the elasticity of substitution between capital and labor - σ - has been proceeding for 75 years. While there is clearly a strong case for the importance of σ in the analysis of growth and other economic issues, much less agreement exists on the value of σ. This paper offers some...

This study provides some perspective on analyzing the effects of corporate taxation on capital formation. Our framework translates tax policy legislation into real outcomes, and identifies three parameters that play a central role in determining the impact on policy. The remainder of the paper...

The elasticity of substitution between capital and labor features prominently in several areas of economic research. However, a consensus estimate remains elusive. We develop an estimation strategy that filters panel data in an original way and avoids several pitfalls - difficult-to-specify...

This paper explores the instability in estimated money demand functions. Using a new data series on credit card usage, we evaluate the role of financial innovations in stabilizing the M1 demand function over three troubling episodes. We find that our measure of financial innovations improves the...

Theoretical and empirical models of investment spending have treated financial structure very differently. Recent research has begun to narrow this gap and, based on developments in the economics of information, has drawn theoretical links between investment spending and the frictions and...

The price sensitivity of business investment spending is a central element in economic analysis. A substantial response of capital spending to its user cost, which combines interest, tax, and depreciation rates with relative prices, is critical to evaluating the effectiveness of monetary policy,...