Description of My Model

The volume of the capital stock is defined as the original cost at constant prices of all tangible capital that has not been scrapped. Due to the poor data available for the UK my calculations and testing have had to be limited to the US. The volume of labour is defined as civilian employment. Quality improvements for both labour and capital are defined as being part of TFP. TFP is under conditions of full employment and must therefore be measured over long time periods. All growth comes from TFP, changes in labour and NTVs. The change in the volume of capital less the change in the volume of labour equals the change in NTVs and the balance is that from changes in technology (TFP). NTV is exogenous in aggregate. The value of the capital stock, but not its volume, is mean-reverting.