Measuring Capital and Multifactor Productivity: The Role of Asset Depreciation and Initial Capital Stock Estimates

The national accounts produced by the This paper extends a previous sensitiv- US Bureau of Economic Analysis (BEA) ity analysis by Inklaar (2010), who focused are used as a laboratory to analyse the sen- on the sensitivity of capital services to sitivity of capital and MFP measurement the type of assets considered and to the in this paper. [...] country specific, and estimating geomet- It is worth noting that this proposed ric cohort depreciation rates for France, comparison is better than relying on De- Germany, Italy and the United Kingdom clining Balance Rates (DBRs) to plug the based on the average asset service lives of depreciation and retirement patterns of these countries and the DBRs of the United other countries into the PIM use. [...] The impact of switching to other countries’ main difference with the official US ac- (larger) cohort depreciation rates on the counts relates to the CFC of residential and growth rate of the US net capital stock has non-residential buildings.12 the largest (negative) impact in the period Accordingly, Chart 2 shows that the level corresponding to the Great Recession and of US net capital stock woul. [...] These assumptions the depreciation and the retirement of as- may concern the growth rate of investment, sets, the estimation of capital stocks with in which case they are used to backcast in- the PIM requires investment time series vestment time series, or capital stock-to- and initial capital stocks to initiate the esti- output ratios, in which case initial capital mation process. [...] This article discussed the sensi- Kingdom would reduce the net capital tivity of capital and MFP measurement to stock of the US private sector by up to one changes in the depreciation and retirement third.