Abstract

http://ssrn.com/abstract=1021977
 
 

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Unmeasured Investment and the Puzzling U.S. Boom in the 1990s


Ellen R. McGrattan


Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities; National Bureau of Economic Research (NBER)

Edward C. Prescott


Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

October 2007

NBER Working Paper No. w13499

Abstract:     
The basic neoclassical growth model accounts well for the postwar cyclical behavior of the U.S. economy prior to the 1990s, provided that variations in population growth, depreciation rates, total factor productivity, and taxes are incorporated. For the 1990s, the model predicts a depressed economy, when in fact the U.S. economy boomed. We extend the base model by introducing intangible investment and non-neutral technology change with respect to producing intangible investment goods and find that the 1990s are not puzzling in light of this new theory. There is compelling micro and macro evidence for our extension, and the predictions of the theory are in conformity with U.S. national products, incomes, and capital gains. We use the theory to compare current accounting measures for labor productivity and investment with the corresponding measures for the model economy with intangible investment. Our findings show that standard accounting measures greatly understate the boom in productivity and investment.

Number of Pages in PDF File: 43

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Date posted: October 16, 2007  

Suggested Citation

McGrattan, Ellen R. and Prescott, Edward C., Unmeasured Investment and the Puzzling U.S. Boom in the 1990s (October 2007). NBER Working Paper No. w13499. Available at SSRN: http://ssrn.com/abstract=1021977

Contact Information

Ellen R. McGrattan (Contact Author)
Federal Reserve Bank of Minneapolis - Research Department ( email )
90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-340-2587 (Phone)
612-340-2356 (Fax)
University of Minnesota - Twin Cities
420 Delaware St. SE
Minneapolis, MN 55455
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Edward C. Prescott
Arizona State University (ASU) - Economics Department ( email )
Tempe, AZ 85287-3806
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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