QUEST II. A Multi-Country Business Cycle and Growth Model

( =(1 - η)   ^{(1 -} D )(^{1 - α}<_v, ρ

( 3(, /3, (1 + WH )) ^{( )}

Table 2 contains the structural parameters of the corporate sector. The production function
parameters α , τ and π have been estimated with annual data. The parameter ρ has been
imposed such as to yield an elasticity of substitution between capital and energy slightly
smaller than one. The adjustment cost parameter in the investment equation has been
estimated on quarterly date for the six large countries, Germany, France, Italy, UK, US and
Japan, and on the basis of annual data for the other European countries, using an Euler
equation approach. We assume that the share of adjustment costs is unlikely to be smaller
than 5% of total investment expenditure, which roughly corresponds to a value of 5.5 for φ.
Therefore the parameter estimate for those countries where a value smaller than 5.5 was
obtained in estimation was adjusted upwards.

Table 2: Production parameters

Note:      * Estimated on annual data over period 1974-1995

** Imposed coefficient (see text)

*** Estimated on quarterly data for 6 largest economies, annual data for others

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