The Vintage Effect in TPF-Growth: An Analysis of the Age Structure of Capital

M. Gittleman, T. Ten Raa, E.N. Wolff

Research output: Working paperDiscussion paperOther research output

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Abstract

The age structure of capital plays an important role in the measurement of productivity.It has been argued that the slowdown in the 1970 s can be ascribed to the aging of the stock of capital.In this paper we incorporate the age structure in productivity measurement.One proposition proves that Nelson s (1964) formula is only an approximation.Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital.Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows.The analysis rests on a rigorous accounting for vintages.We translate the Bureau of Economic Analysis age of capital data into a measure of rates of obsolescence.Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data.The results indicate that the use of capital stock in efficiency units does cause some smoothing of Total Factor Productivity growth over time.In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintageadjusted TFP growth is significantly lower than unadjusted TFP growth.The measured productivity slowdown of the 1970s is somewhat ameliorated.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages31
Volume2003-109
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-109

Fingerprint

Age structure
TFP growth
Obsolescence
Productivity growth
Inclusion
Productivity measurement
Capital ratios
Productivity
Approximation
Total factor productivity growth
Depreciation
Capital stock
Smoothing
Productivity slowdown
Economic analysis
Capital growth

Keywords

  • capital
  • productivity
  • growth
  • expenditure
  • tfp

Cite this

Gittleman, M., Ten Raa, T., & Wolff, E. N. (2003). The Vintage Effect in TPF-Growth: An Analysis of the Age Structure of Capital. (CentER Discussion Paper; Vol. 2003-109). Tilburg: Macroeconomics.
Gittleman, M. ; Ten Raa, T. ; Wolff, E.N. / The Vintage Effect in TPF-Growth : An Analysis of the Age Structure of Capital. Tilburg : Macroeconomics, 2003. (CentER Discussion Paper).
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Gittleman, M, Ten Raa, T & Wolff, EN 2003 'The Vintage Effect in TPF-Growth: An Analysis of the Age Structure of Capital' CentER Discussion Paper, vol. 2003-109, Macroeconomics, Tilburg.

The Vintage Effect in TPF-Growth : An Analysis of the Age Structure of Capital. / Gittleman, M.; Ten Raa, T.; Wolff, E.N.

Tilburg : Macroeconomics, 2003. (CentER Discussion Paper; Vol. 2003-109).

Research output: Working paperDiscussion paperOther research output

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AB - The age structure of capital plays an important role in the measurement of productivity.It has been argued that the slowdown in the 1970 s can be ascribed to the aging of the stock of capital.In this paper we incorporate the age structure in productivity measurement.One proposition proves that Nelson s (1964) formula is only an approximation.Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital.Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows.The analysis rests on a rigorous accounting for vintages.We translate the Bureau of Economic Analysis age of capital data into a measure of rates of obsolescence.Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data.The results indicate that the use of capital stock in efficiency units does cause some smoothing of Total Factor Productivity growth over time.In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintageadjusted TFP growth is significantly lower than unadjusted TFP growth.The measured productivity slowdown of the 1970s is somewhat ameliorated.

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Gittleman M, Ten Raa T, Wolff EN. The Vintage Effect in TPF-Growth: An Analysis of the Age Structure of Capital. Tilburg: Macroeconomics. 2003. (CentER Discussion Paper).