The Dynamic Demand for Capital and Labor
CFDP Revision Date
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.
Shapiro, Matthew D., "The Dynamic Demand for Capital and Labor" (1984). Cowles Foundation Discussion Papers. 976.