DEPRECIATION OF DURABLE GOODS IN AN UNSTABLE ECONOMY: THE CASE OF ARGENTINA

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DEPRECIATION OF DURABLE GOODS IN AN UNSTABLE
ECONOMY THE CASE OF ARGENTINA A HultenWycof
ApproachAriel CorembergECLAC Buenos Aires
ArgentinaCONICET/IDESacorem_at_fibertel.com.aracor
emb_at_yahoo.com.arThe 2008 World Congress on
National Accounts and Economic Performance
Measures for NationsMay 1217, 2008Key Bridge
Marriott (Arlington, VAminutes from Washington
D.C.)
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OBJECTIVE
Identification of the Depreciation Pattern in
emerging economies using Vintage Assets Prices
(HW 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
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• (Koopmans 1947) This research applies the famous
  Koopmans 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

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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

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• 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

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AGE PRICE PROFILES
Hiperbolic b0.75
Straight Line
Geometric
Geometric R2
Sum of the digits
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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)
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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

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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 0100)
60
40
20
0
0
1
2
3
4
5
6
7
8
9
10
Age
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TABLE 2 Information Sources on the Age Price Profile of Durable Goods TABLE 2 Information Sources on the Age Price Profile of Durable Goods TABLE 2 Information Sources on the Age Price Profile of Durable Goods
Sources Period
Farm Tractors Surveys Prices of Farm Tractors 1997
Aircrafts Aircraft Bluebook Price Digest 2002
Cars Tax Agency based on Market Prices 1998-2002
Light commercial vehicles Tax Agency based on Market Prices 1998-2002
Buses Tax Agency based on Market Prices 1998-2002
Trucks Tax Agency based on Market Prices 1998-2002

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Box-Cox Test Simple Version

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TABLE 3 Box-Cox Test Simple Form TABLE 3 Box-Cox Test Simple Form TABLE 3 Box-Cox Test Simple Form TABLE 3 Box-Cox Test Simple Form TABLE 3 Box-Cox Test Simple Form TABLE 3 Box-Cox Test Simple Form TABLE 3 Box-Cox Test Simple Form
? ? ?1 ?2 Log-likelihood n. obs.
Aircraft -0,17 5,34 -0,01   -36935 2.783
Cars -0,17 -11,45 -0,03 0,01 -222518 20.675
LCV -0,03 -37,21 -0,10 0,02 -47642 Semilog 4.636
Buses -0,15 -19,71 -0,04 0,01 -12601 1.148
Trucks 0,39 -1244,31 -3,88 0,71 -38351 3.293
Farm Tractors -0,06 7,56 -0,03   -6200 semilog 571
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)
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Box-Cox Test Double Form
TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors TABLE 7 Box-Cox Test Double Form for Airplanes and Farm Tractors
  l1 l2 a b1 Log-likelihood n. obs.
Aircraft -2,58 3,83 0,39 0,00 (31.057) 2.783
Farm Tractors -0,05 0,87 8,18 -0,05 (6.198) 571
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TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency
Cars 1998 1999 2000 2001 2002
?? -0,20 -0,16 -2079,05 -0,27 -0,28
?? 0,40 0,51 0,02 0,76 0,80
?? -0,05 -0,06 -1317,15 -0,02 -0,01
? 4,40 5,03 9,27 3,49 3,41
Log-likelihood -33.439 -39.489 -45.689 -49.353 -54.688
n. obs. 3.098 3.673 4.243 4.682 4.998
LCV 1998 1999 2000 2001 2002
?? 0,22 -2,10 0,45 0,34 0,09
?? 0,14 18707,78 0,17 0,35 0,26
?? -3,12 0,00 -27,29 -7,55 -0,89
? 37,39 0,48 204,88 83,71 17,06
Log-likelihood -6.250 -7.508 -9.729 -10.797 -12.523
n. obs. 623 763 972 1093 1197
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TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency TABLE 8 Double Form Box-Cox Test for Transport Equipment by Category with Annual frequency
Buses 1998 1999 2000 2001 2002
?? -0,79 0,10 -0,21 -0,37 -0,09
?? 1,13 -2.156.209 0,22 0,66 0,59
?? 0,00 -395,11 -0,06 -0,01 -0,13
? 1,26 19,74 4,27 2,68 6,92
Log-likelihood -1358 -2178 -2584 -3146 -3258
n. obs. 127 191 242 293 308
Trucks 1998 1999 2000 2001 2002
?? 0,06 -2,31 0,53 0,53 0,77
?? -1091,41 775,30 -9,39 19,79 -10,19
?? -2143,14 0,00 -8,78E07 0,00 -5,20E13
? 15,31 0,43 9351476,00 500,82 5,10E12
Log-likelihood -8.083 -8.090 -12.321 -4.461 -4.868
n. obs. 692 743 1065 392 429
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• In almost every case the shape of depreciation
  has been convex
• ?1lt 1 y ?2lt1 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

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Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices Table 4 Average Annual Rate of Change in Vintage Asset Vehicles Prices
Cars 1999 2000 2001 2002 LCV 1999 2000 2001 2002 Buses 1999 2000 2001 2002 Trucks 1999 2000 2001 2002
0 -13,7 13,1 3 56,6 0 39,6 -33 -8,7 71,2 0 23,9 -5,6 1 27,8 0 3 -12 -6,7 27,7
1 -8,2 2,6 -0,2 57,7 1 39,9 -29 -11 62 1 30,9 -9,8 -0,1 31,1 1 6,8 -13 16,5 5,9
2 -2,6 5,6 -8,1 49,8 2 49,1 -32 -9,9 52,4 2 31,7 -12 5,7 24,1 2 -17 8,9 -2,1 22,8
3 -1,7 1,7 0,6 43,2 3 37,5 -23 -13 55,1 3 17,5 -31 20,5 26,9 3 -10 -15 31,6 6,4
4 -0,4 -6 3,4 60,4 4 48,7 -32 -8,3 51,9 4 33,5 -31 -1 49,6 4 -13 -13 3,3 51,1
5 -2,2 -13,5 7,4 60,1 5 -1,2 -0,1 -14 55,2 5 97,8 -40 -5,3 32 5 -22 -2 3,4 19,5
The relative asset price changed through time.
The age price profile may not seem stable.
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Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change Table 5 Price of New Vehicles Annual Rate of Change
CARS LCV TRUCKS BUSES
DGI INDEC DGI INDEC DGI INDEC DGI INDEC
1999 -1,30 -13,70 -2,30 39,60 0,50 3,00 0,20 23,90
2000 1,90 13,10 0,70 -32,60 0,00 -11,60 19,40 -5,60
2001 -7,00 3,00 -11,00 -8,70 -8,00 -6,70 -4,20 1,00
2002 78,30 56,60 86,10 71,20 64,70 27,70 193,00 27,80
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.
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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
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CAPITAL STOCK IN ARGENTINA-INDEC
(K/POP)USAgt(K/POP)ARG us 84.464gtus15.506
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CAPITAL OUTPUT RATIO
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• 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

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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