Summary
On the basis of theoretical work byJohansen andPhelps and an empirical analysis byBliss, a vintage-capital model of production is checked for its applicability to the Federal Republic. In the model it is assumed that the whole production of a period is not expressed by an aggregated production function with aggregated factor inputs, but rather by a number of production functions with factor proportions differing for every year's investment. It is assumed that the factors of production can be substituted only ex ante, i.e. before the decision on the labour requirements of new investments is made. Ex post, by contrast, the chosen factor proportions remain unchanged for the operating life of the investment. For the empirical check of this model a trial and error procedure is applied, to find the set of parameters of the model which generates a good fit to observed data of aggregate production and employment.
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References
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Görzig, B. Results of a vintage-capital model for the Federal Republic of Germany. Empirical Economics 1, 153–166 (1976). https://doi.org/10.1007/BF01764687
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DOI: https://doi.org/10.1007/BF01764687