Research Discussion Paper – RDP 23 The Share Market Value of Business Assets, the Supply Price of Capital, and Price Expectations

Introduction

In this paper we describe the equation to be used in RBA2 to explain the market value of business fixed assets and inventories (VKB). The methods used in defining and measuring VKB have already been described in section 6 of [8]. Here we present the theory in section 2 and the quantitative experiments in section 3 underlying our choice of an equation to explain VKB. In sections 4 and 5 we show how the framework can also be used to provide measures of the supply price of capital and the expected rate of change of consumer prices.