Unmeasured Investment and the Puzzling U.S. Boom in the 1990s / Ellen R. McGrattan, Edward C. Prescott.

Format:

Book

Author/Creator:

McGrattan, Ellen R.

Contributor:

National Bureau of Economic Research.

Prescott, Edward C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13499.

NBER working paper series no. w13499

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

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.

Notes:

Print version record

October 2007.