An Alternative Model of Business Investment Spending

macroeconomics, business investment

Decomposing Productivity Growth in the U.S. Computer Industry

In this paper, we examine the sources of the productivity growth in the U.S. computer industry from 1978 to 1999. We estimate a joint production model of output quantity and quality that distinguishes two types of technological changes: process and product innovations. Based on the estimation results, we decompose total factor productivity (TFP) growth rate into the contributions of process and product innovations and scale economies. The results show that product innovation associated with better quality accounts for about 30 percent of the TFP growth in the computer industry. Furthermore, we find that the TFP acceleration in the computer industry in the late 1990s is mainly derived from a rapid increase in product innovation.COMPUTER, PRODUCTIVITY; PROCESS AND PRODUCT INNOVATIONS; HEDONIC PRICE

Restriced Cost Functions and the Rate of Return to Quasi-Fixed Factors, with an Application to R&D and Capital in the Bell System

This paper provides a statistical test to assess the adequacy of static equilibrium models. The test is based on a restricted cost function framework together with the envelope conditions which characterize static equilibrium for the quasi-fixed factors. We also show how restricted cost function models can be exploited to investigate some important issues such as the calculation of the rates of return to quasi-fixed factors, the determination of over- or underinvestment in particular assets, and the distinction between short run excess capacity and long run economies of scale. We provide an empirical application of these techniques to data on the Bell System for the period 1947-1976, treating the stocks of physical capital and of research and development (R&D) as quasi-fixed inputs. The results suggest that there was substantial overinvestment in capital and underinvestment in R&D compared to the static equilibrium levels, and that the rates of return to capital and R&D were about 4.5 and 10-15 percent, respectively.

Information Technology Externalities: Empirical Evidence from 42 U.S. Industries

Using interindustry transaction in input-output tables, we examine Information Technology (IT) externalities in U.S. private industries over the period 1984-2000. Our empirical results show that computerization of an industry's customer and supplier industries reduces both labor and material costs of the industry. Moreover, cost savings driven by supplier industries are larger than those driven by customer industries. We also find that industries in the services sector enjoy more benefits from IT spillovers than industries in other sectors because of their high IT capital intensity and composition of interindustry transaction. Decomposition of total factor productivity (TFP) suggests that IT externalities can explain considerable parts of TFP growth, although possible mismeasurement of output in services industries leads to exacerbated technical changes of services industries.INFORMATION TECHNOLOGY; NETWORK EXTERNALITY; INPUT-OUTPUT TABLE; TOTAL FACTOR PRODUCTIVITY

Price Expectations, Foreign Exchange and Interest Rates, and Demand for Money in an Open Economy

Traditional studies on demand for money have often ignored influence of foreign monetary developments. The literature on international capital mobility, on the other hand, focuses on the impact of adjustments in international reserves on domestic money supply with the implicit assumption that aggregate demand for money is inelastic with respect to foreign monetary developments such as changes in exchange and foreign interest rates. These two views have often led to the conclusion that domestic monetary policy is fairly ineffective, and domestic financial markets are highly vulnerable to changes in foreign monetary developments. In this paper, the formulation of a demand function for real cash balances generalizes the traditional demand functions for money which explicitly take into account changes in exchange rates, foreign interest rates, and inflationary expectations. The underlying theoretical model is a general portfolio mode of asset holding which specifies the channels through which the influence of monetary developments abroad are transmitted to the supply and demand for money in a particular country. The demand function for real cash balances derived from this model is estimated using the tile series data for the period 1960-75 for Canada, United States, United Kingdom, and Germany. The results indicate that foreign monetary developments affect demand for money significantly, and considerable misspecification occurs when they are ignored. The results indicate that demand for real cash balances is not, as the traditional theory suggests, inelastic with respect to changes in foreign financial developments, and is fairly stable over the stressful period of 1970-75 when significant international monetary crises came in succession.