Unmeasured investment and the puzzling U.S. boom in the 1990s
By: Ellen R. McGrattan, Edward C. Prescott.
Contributors: Prescott, Edward C.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13499.; Working paper series (National Bureau of Economic Research) -- working paper no. 13499.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 41
Subjects: United States -- Economic conditions -- 1981-2001 -- Econometric models
Description: 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: "October 2007"

Includes bibliographical references (p. 34-35).

Also available in PDF from the NBER world wide web site (www.nber.org).