NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Dynamic Demand for Capital and Labor

Matthew D. Shapiro

NBER Working Paper No. 1899 (Also Reprint No. r0860)
Issued in April 1986
NBER Program(s):   EFG

A model of the dynamically interrelated demand for capital and labor is specified and estimated. The estimates are of the first-order conditions of the firm's problem rather than of the closed-form decision rules. This use of the first-order conditions allows a random rate of return and a flexible specification of the technology. The estimates do not imply the very slow rates of adjustment displayed in other, related estimates of the demand for capital. Because adjustment is estimated to be rapid, there is,contrary to the standard view, scope for factor-prices to affect investment at relatively high frequencies.

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Document Object Identifier (DOI): 10.3386/w1899

Published: Shapiro, Matthew D."The Dynamic Demand for Capital and Labor," Quarterly Journal of Economics, Vol. 101, No. 3, August 1986, pp. 513-542.

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