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Logarithmic depreciation

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  • Anderson, Evan W.
  • Brock, William

Abstract

This paper studies logarithmic depreciation which is similar to conventional geometric depreciation, except that capital and investment are replaced by their logarithms. We provide empirical and theoretical evidence that logarithmic depreciation can account for aggregate capital depreciation better than geometric depreciation and better than more complicated methods that have additional parameters. We document that consumption and investment decisions in the United States and other countries appear to be made under the erroneous assumption that aggregate capital approximately depreciates geometrically and the welfare losses from doing so are large.

Suggested Citation

  • Anderson, Evan W. & Brock, William, 2021. "Logarithmic depreciation," Economic Modelling, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:ecmode:v:101:y:2021:i:c:s0264999321000924
    DOI: 10.1016/j.econmod.2021.105503
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    Cited by:

    1. van der Ploeg, Frederick & Rezai, Armon, 2021. "Optimal carbon pricing in general equilibrium: Temperature caps and stranded assets in an extended annual DSGE model," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).

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    More about this item

    Keywords

    Adjustment costs; Bayesian; Capital; Investment; Robustness;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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