Cost of Capital for the United States, Japan, and Canada: An Attempt at Measurement Based on Individual Company Records and Aggregate National Acccoun

Ando, Albert; Hancock, John D.; Sawchuk, Gary

doi:10.3386/w5884

“…That generosity of spirit was complemented by a keen mind and seemingly boundless energy. Albert made fundamental contributions to a number of topics relevant to the present paper, including modeling of business investment (e.g., Ando et al (1974)), measuring the cost of capital (e.g., Ando, Hancock and Sawchuk (1997)), and problems with measurement of Japanese data (e.g., Ando (2000) and Ando, Christelis and Miyagawa (2003)). This and other work by Albert was theoretically rigorous, policy relevant, and scrupulous with data.…”

Section: Introductionmentioning

confidence: 99%

Land Prices and Business Fixed Investment in Japan

Kiyotaki¹,

West²

2006

Long-Run Growth and Short-Run Stabilization

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“…That generosity of spirit was complemented by a keen mind and seemingly boundless energy. Albert made fundamental contributions to a number of topics relevant to the present paper, including modeling of business investment (e.g., Ando et al (1974)), measuring the cost of capital (e.g., Ando, Hancock and Sawchuk (1997)), and problems with measurement of Japanese data (e.g., Ando (2000) and Ando, Christelis and Miyagawa (2003)). This and other work by Albert was theoretically rigorous, policy relevant, and scrupulous with data.…”

Section: Introductionmentioning

confidence: 99%

Land Prices and Business Fixed Investments in Japan

Kiyotaki

¹

,

West

²

2004

2

0

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Japan has seen episodes in which boom and bust in land prices is accompanied by boom and bust in business fixed investment. We develop a model that includes land in the production function. We show that in this model movements in land prices will be associated with movements of the capital stock in the same direction, provided the elasticity of substitution between land and capital is greater than one. We then estimate an aggregate investment function. Consistent with an elasticity greater than one, increases in land prices are associated with increases in the business capital stock even after controlling for movements in output and the cost of capital; decreases have a symmetric effect.In the end, however, we find that movements in land prices explain relatively little of the movement in the business fixed investment. In addition to possibly indicating that the elasticity is very near one, the small effect may result because of difficulty in extracting information from noisy land prices, neglect of the effects of regulations, and failure to consider credit constraints.

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