An Investment Function for Luxembourg: estimating an error-correction model
نویسنده
چکیده
Separate investment functions are estimated for expenditure on “plant and equipment” in two sectors of the Luxembourg economy: Tradables (manufacturing, international transport and international communications) and Non-Tradables (construction, retail, domestic transport and domestic communications). The theoretical framework is derived from the neoclassical model of investment based on a Constant Elasticity of Substitution production function. However, it allows for the “putty-clay” hypothesis through separate distributed lags for output and user cost. The empirical specification adopts an error-correction framework in determining the short-run dynamics by which investment adjusts to its long-run equilibrium. Separate components of user cost seem to have distinct short-run effects on investment in the tradables sector. The accelerator effects of output on investment are much more pronounced in the nonTradables sector where adjustment is also much slower. Some of these differences (and part of the problems in estimation) may be due to the endogeneity of prices in the construction sector, which accounts for about half of investment expenditure in the nontradables sector. This research represents part of the mod-L project to build a macroeconometric model for Luxembourg. The project is co-sponsored by the CRP-CU and STATEC. See the homepage at http://www.crpcu.lu/projets/modl.html from which this and other working papers may be downloaded. EMail to: [email protected]
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