Identification of the Depreciation Pattern in emerging economies using Vintage Assets Prices (H&W approach)

1. DEPRECIATION OF DURABLE GOODS IN AN UNSTABLE ECONOMY: THE CASE OF ARGENTINA “A Hulten&Wycof Approach”Ariel CorembergECLAC Buenos Aires ArgentinaCONICET/IDESacorem@fibertel.com.aracoremb@yahoo.com.arThe 2008 World Congress on National Accounts and Economic Performance Measures for NationsMay 12–17, 2008Key Bridge Marriott (Arlington, VA—minutes from Washington D.C.)

2. OBJECTIVE Identification of the Depreciation Pattern in emerging economies using Vintage Assets Prices (H&W approach) Argentina during 1998-2002: the biggest & longest economic depression of its modern economic history, DDD currency devaluation (default & desdoralization) which provoked a high instability in relative prices

3. (Koopmans 1947) This research applies the famous Koopman`s motto: “It is necessary to avoid Measurement without theory” • (J. Hicks 1981) quoted by Hulten“ The measurement of capital is one of the nastiest jobs that economists have set to statisticians” • Diewert (2003): “The main problem in accounting is determining the value of capital goods that are used by the firm more than one fiscal year”

4. SUMMARY Conceptual and Theoretical Issues • Importance • Concepts (SNA93, OECD, Hill, Hulten, Diewert) • Main Standard Depreciation Methods • Asymmetric Information in Durable Goods Empirical Results in Argentina • Box Cox Test: Simple and Double Form • Crossection and Panel Data Results • Age Price Profile Under Inflation

5. The empirical estimation of rate & depreciation pattern reduces the uncertainty about the real value of capital stock calculated by PIM by standard (fix) assumptions • If the depreciation shape is not geometric, the aggregate depreciation depends on age structure of the stock and also is endogenous. • The Instability of the relative prices in developing countries could have effects on durable goods market and also on age price profile • The use of standard price index could biased the capital stock and also the analysis of wealth and productivity of an economy

6. 120 100 80 Price of Capital Good (Year 0=100) 60 40 20 0 0 1 2 3 4 5 6 7 8 9 10 Age AGE PRICE PROFILES Hiperbolic b=0.75 Straight Line Geometric Geometric R=2 Sum of the digits

7. Hedonic Valuation Method 1. Econometric estimation of the hedonic price indicator in the base year 2. Econometric Test of Functional Shape of Depreciation (Box-Cox test) 3. Testing the Functional Shape of the Withdrawals Function 4. Valuation of the physical stock according to their attributes 5. Measuring the capital stock series by PIM (benchmarking HV base year)

8. CAPITAL STOCK IN ARGENTINA BY METHOD • HEDONIC VALUATION (58.5%) • DWELLING UNITS • NON RESIDENTIAL PRIVATE CONSTRUCTION • LIVESTOCK • AGRICUTURAL ASSETS • FARM TRACTORS & OTHER AGRICULTURAL MACHINES • AIRCRAFTS • TRANSPORT EQUIPMENT • PIM (41.5%) • REST OF DURABLE EQUIPMENT AND MACHINES • PUBLIC WORKS

10. EFFECTS OF INFLATION ON DEPRECIATION EFFECTS OF INFLATION ON DEPRECIACION PATTERN 160 Original 140 Neutral Inflation Non Neutral Inflation (average life decreases) 120 Non Neutral Inflation (average life increases) 100 80 Durable Good Price Age 0=100) 60 40 20 0 0 1 2 3 4 5 6 7 8 9 10 Age

12. Box-Cox Test Simple Version ;

16. In every case, the test confirmed convex functional forms, but • the null hypothesis of identification of any exact functional form proposed (geometric, reciprocal or linear) was rejected, • Except in the case farm tractors, In the last case, the geometric form was accepted (=0). • According to table 6 by year: also buses (1999)

17. Box-Cox Test: Double Form

20. In almost every case the shape of depreciation has been convex: 1< 1 y 2<1; but in few cases an exact form could be detected In the case of Light C.V.(1999), Buses (1999) and Trucks (1999 y 2001), there could be some atypical shapes (backward S, accelerated depreciation or in 2 steps) but they were not detected by the test

21. The relative asset price changed through time. The age price profile may not seem stable.

22. The use of standard price index (with representative models) could biased the value capital stock and also the analysis of wealth and productivity of an economy.

27. Shifts in the age price profile curve due to inflation were not neutral 1. Consumer Durable Goods : Cars & Light C.V.: Life Span Decreases 2. Capital Goods: Buses and Trucks: Average Life Increases

28. CAPITAL STOCK IN ARGENTINA-INDEC • (K/POP)USA>(K/POP)ARG: u$s 84.464>u$s15.506

29. CAPITAL OUTPUT RATIO

30. The econometric test weakly verifies convex depreciation in every type of durable goods • The econometric test only verifies an exact geometric shape in the case of farm tractors (1997) and buses (1999) with B-X Simple (but any B-X double form) • The age price profile in Argentina changes through time and it is not neutral when there is inflation • This results are relevant in order to estimate the capital stock and empirically test the main assumptions in PIM: average life, retirement pattern and depreciation in unstable economies

31. Main Suggestion From Emerging Economies This study supports OECD Canberra Group II remarks: • AT LEAST VERIFY PIM ASSUMPTIONS FOR A BASE YEAR • BUT IN UNSTABLE ECONOMIES: !!WE MUST UPDATE THE RESEARCH MORE FRECUENTLY