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Ex post versus ex ante measures of the user cost of capital

Oulton, Nicholas ORCID: 0000-0002-1595-7732 (2007) Ex post versus ex ante measures of the user cost of capital. Review of Income and Wealth, 53 (2). pp. 295-317. ISSN 0034-6586

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Identification Number: 10.1111/j.1475-4991.2007.00232.x


Should we use ex post or ex ante measures of user costs to calculate the contribution of capital in a growth accounting exercise? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalized across assets. But this is only true if expectations are correct. In general, the ex post rate of return differs between assets, even though ex ante it is the same. I propose a hybrid method. The index of capital services is estimated using ex ante weights; the contribution of capital is the growth of this index multiplied by the ex post income share of capital. I show that this method is theoretically correct if the production function is CES. I compare the ex post, ex ante and hybrid methods using data for 31 U.K. industries from 1970 to 2000.

Item Type: Article
Official URL:
Additional Information: © 2007 The Author
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
JEL classification: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence
Date Deposited: 21 Mar 2013 14:07
Last Modified: 17 Jun 2024 18:18

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