Machinery or Equipment Prices or Inflation and Technological Innovation

Regardless of whether currencies lead equities or whether equities lead currencies, it can be generally surmised that when the demand in a particular currency rises its strength rises which is in turn likely the manifestation of the desire for investors to either invest into that economy whether it be in equities (the most common financial investment), that country’s bonds, or capital in that country in order for business to establish infrastructure. Spillovers of volatility between both markets may increase the international portfolio risk faced by international investors. This reduces the opportunities from international diversification and disturbs the asset allocation decisions. Rapidly increasing international equity investments creates a higher supply and demand for currencies, leading to some degree of interdependence between both markets.

2.5. Machinery or Equipment Prices or Inflation and Technological Innovation

Although the literature on specifically CEPs, ECDPs, or GMPs suffers from a lack of depth, the literature on innovation and technology in the construction industry is significantly more elucidating. However, in spite of the insight which can be gained from understanding the quantitative correlation between equipment prices in general and the implementation of modern computer technology into construction equipment, such a task remains incredibly difficult to accomplish. This is primarily due to the fact that such data—the implementation of computer technology into construction equipment—is simply not open source and readily available to the public. Such is true also for data related to robotics and manufacturing of industrial goods.

Moreover, how one would quantify such a variable is also difficult to ascertain. Because of this, it is nearly impossible to point to a specific body of research which specifically investigates this relationship.

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In spite of this, there are still some studies in the academic literature which investigate the relationship between technological advancements and the construction equipment industry. For instance, Adriti et al. (1996) asserts several findings including that technological development in earth-moving equipment proceeded steadily over several decades from the 1960s to the 1990s.

Moreover, this research found that technological advances in construction equipment has not historically or merely been confined to the construction equipment industry. Rather, technological development in the construction industry enjoys a spillover effect from other machinery industries and innovation tends not to start first in the construction equipment industry. Finally, this research generally found that the introduction of new equipment as measured yearly was an indicator of technological development. However, several problems exist with this conceptualization.

Primarily, it does not take into consideration imitation or the fact that previous machines models may not have significant technological advances as the previous ones. Other research has found that technological innovation in the construction industry is quite slow compared to the manufacturing sector (Laryea and Ibem, 2014).

Importantly, Toole (1998) found that increasing technological development in construction equipment led to a decrease in prices of construction equipment. Furthermore, this was also found to be the case in not only the resale price of construction equipment that was new and used, but also this was the case for the cost of construction equipment production (Ibid.). Nam and Tatum (1992) also found that technological advancements in construction equipment led to price reductions. However, they contributed that this price was reduction was not incremental like the advancement of technology, but was actually dramatic compared to the advancement of technology (Ibid.) In other words, while technological advancement may be incremental, the price reduction in construction equipment was much stronger than was the pace of development. This is

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to say, which is already known through the empirical data of year differenced CEPs, that the price to produce construction equipment is quite volatile in the long-term. Since this is the case, the literature generally tends to believe this is the case at least in part due to technological advancements in construction equipment.

Overall, because of the fact that technological costs have been decreasing at an asymptotic or negatively exponential rate, the cost of implementing technology has also decreased. Is has been asserted that Moore’s Law is a drag on inflation because implementing cheaper technology into the production of goods reduces the prices of goods (Vanguard, 2017). Furthermore, the literature also asserts that technology has been increasingly implemented in the production of nearly all consumer and durable goods since 1997 (Ibid., para. 8). Additionally, it has been calculated that the price decrease by sector was the most pronounced in the manufacturing sector where much of the workforce has been displaced by the increased use of technology in industrial production (Lv et al. 2019). Moreover, technological progress in the United States has in general decreased inflation at a statistically significantly higher rate than globalization (Ibid.).

Research and development (R&D) cannot be ignored in this analysis for obvious reasons.

Essentially, R&D is the process of using human capital on the discovery of new facts and the application of these new facts to create new innovations (Neal, 2006, pg.1). First, without R&D, innovation does not exist. Without innovation, technological progress is impossible. R&D also requires individuals and is fundamentally a component of the labor force. Importantly, the academic literature suggests that R&D is directly related to increasing productivity, increasing efficiency, and decreasing inflation or price increases (Mansfield, 1980). The negative relationship with inflation within the US is a short-run impact and a long-run impact as well (Mincer and Danninger, 2000).

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Macroeconomic theory largely suggests that tariffs should have a meaningful impact on the price of equipment prices. This should be the case for the commodities which make up these prices in addition to the machines themselves once they are built. Since tariffs are almost always retaliated with more tariffs, this impacts imports and exports. Recently, tariffs have been dramatically increased on a whole host of goods against China and Europe from the United States.

They have retaliated in kind. Products which have had significant tariff increases include machinery and the steel which makes up a large majority of the equipment prices. However, it does not appear to be the case that tariffs have impacted prices of many goods at all. Many studies confirm this to be the case. Because of this, it appears to be that tariffs should be considered exogenous to the model (Berthou et al., 2019, para. 5).

2.7. Price Versus Cost and Post-Keynesian Price Theory

Although one may be inclined to assume that price is equal to cost, a nuanced differentiation must be taken into consideration. This is appropriate not just for semantical purposes, but a differentiation is important in determining the price of equipment and the cost of goods that make up the price of equipment. Surely, they are in some linguistic ways synonymous with one another. Yet, Post-Keynesian price theory asserts that while the price of capital may be cost-based, it is not necessarily entirely determined by cost (Shapiro and Sawyer, 2003). It is then easier to conceptualize the price as what the firm sells a product for and the cost as what is being incurred upon a producer for inputs.

The actions of the firm matter much more in Post-Keynesian price theory than what it does in neo-classical Keynesian price theory where the latter suggests that prices are entirely determined by the conditions of the marketplace. In theory, this neo-classical Keynesian proposition may be