No. 26

Inklaar, Robert (2008) The Sensitivity of Capital Services Measurement: Measure all assets and the cost of capital, (May 2008)

The measurement of capital inputs is still a contentious issue: many choices have to be made that have potentially large effects on the resulting capital input series, some entailing differing assumptions about firm behaviour. This paper compares a large number of methodological choices and their impact on US capital services growth at the industry and aggregate level. The results show that measuring all assets, in particular intangible assets, and the choice for the rate of return matter substantially, while other choices are less important. I also argue that for pragmatic reasons, an external rate of return is preferable because it is a transparent and robust choice.