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A PUTTY-CLAY MODEL OF BUSINESS FIXED INVESTMENT

By Mark Lasky

Abstract

In this paper, I specify and estimate a model of investment using ex post fixed proportions, or putty-clay capital, for five categories of business fixed investment. The specification of expectations causes investment to depend on growth in output less growth in total factor productivity (TFP) and on labor productivity times growth in labor hours at full employment. Thus, demographics can play an important role in investment. TFP at full employment is estimated using a Kalman filter to determine the level that would satisfy an Okun’s Law relationship exactly. Labor and aggregate capital are combined using a Cobb-Douglas production function, but the functio

Year: 2003
OAI identifier: oai:CiteSeerX.psu:10.1.1.184.9501
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