Standard theoretical considerations suggest that the quantity and price of a good are jointly determined by supply and demand. In the literature on physical investment, however, attention has been focused almost exclusively on the demand side. This paper considers the theoretical and statistical problems that arise when the demand and supply sides of the market for investment goods are estimated simultaneously. One of the important problems is dealing with the possibility that the price may not adjust instantaneously to clear the market. The model is estimated using data from post-war Japan. The two most important results that emerge are: 1) The long-run supply curve of investment goods is virtually horizontal; and 2) The market appears to be characterized by equilibrium.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics