Capital Goods Price Index – Definition

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Capital Goods Price Index  (CGPI) Definition

The Capital Goods Price Index (CGPI) is a statistic that monitors changes in the prices of fixed assets, as well as how changes in income affect changes in prices of these assets. CGPI is peculiar to New Zealand and it covers six types of fixed assets as used across the nation.

The capital goods price index is released every quarter to reflect the difference in the prices of assets from one quarter to another. This index is used by companies in New Zealand and the government.

A Little More on What is the Capital Goods Price Index – CGPI

There are six types of fixed assets that the capital goods price index measures, they are;

  • Residential buildings such as commercial buildings, houses, and complexes meant for human habitation.
  • Non-residential buildings such as warehouses, shopping outlets, malls, factories and others.
  • Transportation equipment such as trucks and vehicles
  • Land improvement which includes costs for irrigation, clearing and other activities meant to improve the land.
  • Plant machinery and factory equipment
  • Infrastructure project

The capital goods price index is an important metric when measuring inflation in New Zealand, this index is also applied when making monetary policy for the effective and efficient running of the economy. CGPI was published quarterly by the government of New Zealand before it was discontinued in 2015. CGPI was however included in a broader indicator of price changes called the Corporate Price Index (CPI).

Other countries have indexes similar to CGPI used to measure changes in the prices of fixed assets, however, there is no direct equivalent for CGPI, not even in the United States. CGPI is specific to New Zealand.

References for Capital Goods Price Index

http://www.businessdictionary.com/definition/capital-goods-price-index-CGPI.html

https://www.investopedia.com/terms/c/cgpi.asp

https://acronyms.thefreedictionary.com/Capital+Goods+Price+Index

Academic Research on Capital Goods Price Index

Information technology and the Japanese economy, Jorgenson, D. W., & Motohashi, K. (2005). Information technology and the Japanese economy. Journal of the Japanese and International Economies, 19(4), 460-481. In this paper we compare sources of economic growth in Japan and the United States from 1975 through 2003, focusing on the role of information technology (IT). We have adjusted Japanese data to conform to US definitions in order to provide a rigorous comparison between the two economies. The adjusted data show that the share of the Japanese gross domestic product devoted to investment in computers, telecommunications equipment, and software rose sharply after 1995. The contribution of total factor productivity growth from the IT sector in Japan also increased, while the contributions of labor input and productivity growth from the non-IT sector lagged far behind the United States. Our projection of potential economic growth in Japan from for the next decade is substantially below that in the United States, mainly due to slower growth of labor input. Our projections of labor productivity growth in the two economies are much more similar. J. Japanese Int. Economies19 (4) (2005) 460–481.

The industry origins of Japanese economic growth, Jorgenson, D. W., & Nomura, K. (2005). The industry origins of Japanese economic growth. Journal of the Japanese and International Economies, 19(4), 482-542. This paper presents new data on the sources of growth for the Japanese economy over the period 1960–2000. The principal innovation is the incorporation of detailed information for individual industries, including those involved in the production of computers, communications equipment, and electronic components as information technology equipment. We show that economic growth is dominated by investments and productivity growth in information technology, both for individual industries and the economy as a whole. We also show that the revival of total factor productivity growth accounts for the modest resurgence of the Japanese economy since 1995. J. Japanese Int. Economies19 (4) (2005) 482–542.

Expansion abroad and jobs at home: Evidence from Japanese multinational enterprises, Yamashita, N., & Fukao, K. (2010). Expansion abroad and jobs at home: Evidence from Japanese multinational enterprises. Japan and the World Economy, 22(2), 88-97. This paper examines the so-called ‘exporting job’ hypothesis – that expansion of overseas operations of manufacturing multinational enterprises (MNEs) reduces home employment – using a newly constructed matched parent-affiliate panel dataset of Japanese MNEs over the period 1991–2002. The results do not support the widely held view that overseas operations of MNEs lower home employment. On the contrary, there is some evidence that expansion of overseas operations may have helped to maintain the level of home employment.

Bank health and investment: An analysis of unlisted companies in Japan, Fukuda, S. I., Kasuya, M., & Nakajima, J. (2005). Bank health and investment: An analysis of unlisted companies in Japan. CIRJE Discussion Papers, CIRJE-F, 330. Because a borrower often faces switching costs in dealing with individual banks, the financial health of any given bank might affect the borrower.s cost of funds. These costs would be particularly large for firms that have close relationships with relatively few banks. The purpose of this paper is to investigate whether the weakened financial conditions of banks have reduced the investment activities of small and medium firms in Japan. Estimating Tobin.s Q investment functions, we examine the determinants of investment for unlisted Japanese companies in the late 1990s and the early 2000s. We find that several measures of bank-specific financial health have significantly large impacts on investment by borrowers, even when observable characteristics relating to Tobin.s Q, cashflow, and leverage are controlled. We also find that multiple banking relationships, which tend to have a negative impact on investment in general, may be beneficial in relieving hold-up problems when deteriorated bank health does matter

Productivity and business cycles in Japan: evidence from Japanese industry data, Miyagawa, T., Sakuragawa, Y., & Takizawa, M. (2006). Productivity and business cycles in Japan: evidence from Japanese industry data. The Japanese Economic Review, 57(2), 161-186. Constructing a database of 37 industries, we examine whether the measured productivity in Japan is pro‐cyclical and investigate the sources of this pro‐cyclicality by using the production function approach employed by Hall (1990) and Basu and Fernald (1995). The aggregate Solow residual displays pro‐cyclicality. A large number of industries show constant returns to scale. No significant evidence for the presence of thick‐market externalities is found. Our results also hold when we consider labour hoarding, part‐time employment, and the adjustment cost of investment. The results indicate that policies to revitalize the Japanese economy should concentrate on promoting productivity growth.

Pass-through of oil prices to Japanese domestic prices, Shioji, E., & Uchino, T. (2010). Pass-through of oil prices to Japanese domestic prices (No. w15888). National Bureau of Economic Research. In this paper, we investigate changes in the impacts of world crude oil prices on domestic prices in Japan. First, we employ a time-varying parameter VAR (TVP-VAR) approach to confirm that the rate of pass-through of oil prices declined, both at the aggregate and sectoral levels, for the period 1980-2000. Second, by utilizing Input-Output Tables, we find that changing cost structure of Japanese firms goes a long way toward explaining this decline. That is, by the year 2000, oil had become a much smaller component of the Japanese production cost structure. We further find that much of this is attributable to changes in relative prices: as oil became cheaper, it became less important in the overall cost structure, and thus pricing behaviors of firms became less responsive to its prices. Substitution effects, namely firms’ shifts toward less oil intensive production, on the other hand, appear to be less important. We also study the period 2000-2007. We find that, although pass-through rates of oil prices increase in many instances, those increases are small in comparison to the drastic resurgence of oil in the cost structure of firms. We present some possible explanations for this finding.

Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s, Griffin, N. N., & Odaki, K. (2009). Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s. Journal of Productivity Analysis, 31(2), 125-136. Hayashi and Prescott (Rev Econ Dyn 5(1):206–235, 2002) argue that the ‘lost decade’ of the 1990s in Japan is explained by the slowdown in exogenous TFP growth rates. At the same time, other research suggests that Japanese banks’ support for inefficient firms prolonged recessions by reducing productivity through misallocation of resources. Using the data on large manufacturing firms between 1969 and 1996, the paper attempts to disentangle the factors behind the slowdown in productivity growth during the 1990s. The main results show that there was a significant drop in within-firm productivity, the component that is not affected by reallocation of input and output shares across firms over time, during the 1990s. Although we find that misallocation among large continuing firms represents a substantial drag to overall TFP growth for these firms throughout the sample period, the negative impact of misallocation was least visible during the 1990s. The significant reduction in within-firm productivity growth suggests that, as the Japanese economy has matured, a policy which fosters technological innovations via greater competition, R&D, and fast technological adoption may have become increasingly important in promoting economic growth.

China stock market regimes prediction with artificial neural network and markov regime switching, Liu, D., & Zhang, L. (2010). China stock market regimes prediction with artificial neural network and markov regime switching. In Proceedings of the world congress on engineering (Vol. 1, pp. 378-383). This paper provides an analysis of the Shanghai Stock Exchange Composite Index Movement Forecasting for the period 1999-2009 using two competing non-linear models, univariate Markov Regime Switching model and Artificial Neural Network Model (RBF). The experiment shows that RBF is a useful method for forecasting the regime duration of the Moving Trends of Stock Composite Index. The framework employed also proves useful for forecasting Stock Composite Index turning points. The empirical results in this paper show that ANN method is preferable to Markov-Switching model to some extent. 

A new dimension of potential resources in innovation: A wider scope of patent claims can lead to new functionality development, Saiki, T., Akano, Y., Watanabe, C., & Tou, Y. (2006). A new dimension of potential resources in innovation: A wider scope of patent claims can lead to new functionality development. Technovation, 26(7), 796-806. Notwithstanding a significant expectation to increase the contribution of technology to productivity in megacompetition, the productivity of technology in Japan’s high-technology industry has been declining, resulting in a decrease in competitiveness. The only solution to this twisted trap is to shift the current vicious cycle between R&D, technology stock and production to a virtuous cycle. Given strong constraints in fiscal investment, a practical solution to achieving a virtuous cycle is effective utilization of potential resources in innovation. A wider scope for patent claims can be an ingenious trigger leading to a virtuous cycle involving new functionality development, increased productivity of technology, production increases, greater R&D investment and a sustainable wider scope of patent claims. Japan’s Patent Office introduced the Revised Examination Guideline (June 1993 Examination Guideline), including description requirements for patent applications. This induced leading high-technology firms to broaden their scope relative to claiming patents and succeeded in constructing the foregoing virtuous cycle, thereby demonstrating the significance of a new dimension of potential resources in innovation. On the basis of an empirical analysis focusing on techno-managerial efforts by Japan’s pharmaceutical firms with both indigenous and the US capital, this paper attempts to demonstrate the foregoing hypothetical view. A noteworthy implication obtained from the research is that while leading pharmaceutical firms with indigenous capital have constructed a virtuous cycle by means of a wider scope of patent claims and have achieved new functionality development as a result, firms with the US capital have demonstrated a higher level of performance.

A high-frequency forecasting model and its application to the Japanese economy, Inada, Y. (2009). A high-frequency forecasting model and its application to the Japanese economy. The Making of National Economic Forecasts, 172.

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