chirinko_02

Emory University
Department of Economics
Working Papers

Title: That Elusive Elasticity: A Long-Panel Approach To Estimating The Price Sensitivity Of Business Capital
Figure 1
Tables

Number: 02-02

Author: Robert S.Chirinko, Steven M. Fazzari, and Andrew P. Meyer

Issue Date: March 2002

Abstract: 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 filters 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.

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Title:	That Elusive Elasticity: A Long-Panel Approach To Estimating The Price Sensitivity Of Business Capital Figure 1 Tables
Number:	02-02
Author:	Robert S.Chirinko, Steven M. Fazzari, and Andrew P. Meyer
Issue Date:	March 2002
Abstract:	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 filters 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.