Long-Run Equilibrium Ratios of Business Investment to Output in the United Kingdom

Abstract

Over the past 20 years, the constant-price and current-price ratios of business investment to total output have behaved very differently. In this article we use a simple framework to examine how these two ratios should behave in long-run equilibrium. We investigate the conditions in which each ratio will be constant and, more generally, consider how each might evolve over time.