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Unmeasured Investment and the Puzzling US Boom in the 1990s

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  • Ellen R. McGrattan
  • Edward C. Prescott

Abstract

For the 1990s, the basic neoclassical growth model predicts a depressed economy, when in fact the US 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 microeconomic and macroeconomic evidence motivating our extension, and the theory's predictions are in conformity with US national accounts and capital gains. We compare accounting measures with corresponding measures for our model economy and find that standard accounting measures greatly understate the 1990s boom. (JEL E22, E23, O33, O47)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 2 (2010)
Issue (Month): 4 (October)
Pages: 88-123

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Handle: RePEc:aea:aejmac:v:2:y:2010:i:4:p:88-123

Note: DOI: 10.1257/mac.2.4.88
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Citations

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Cited by:
  1. Dooyeon Cho & Antonio Doblas-Madrid, . "Business Cycle Accounting East and West: Asian Finance and the Investment Wedge," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  2. Lustig, Hanno & Syverson, Chad & Van Nieuwerburgh, Stijn, 2011. "Technological change and the growing inequality in managerial compensation," Journal of Financial Economics, Elsevier, vol. 99(3), pages 601-627, March.
  3. Lilia Karnizova, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 12(1), pages 15.
  4. Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
  5. Che, Natasha Xingyuan, 2009. "Sectoral Structural Change in a Knowledge Economy," MPRA Paper 19653, University Library of Munich, Germany.
  6. Francois Gourio & Leena Rudanko, 2011. "Customer Capital," NBER Working Papers 17191, National Bureau of Economic Research, Inc.
  7. Che, Natasha Xingyuan, 2009. "The great dissolution: organization capital and diverging volatility puzzle," MPRA Paper 13701, University Library of Munich, Germany.
  8. Urban Jermann & Vincenzo Quadrini, 2009. "Macroeconomic Effects of Financial Shocks," NBER Working Papers 15338, National Bureau of Economic Research, Inc.
  9. Ayse Imrohoroglu & Kaiji Chen, 2012. "Debt and the U.S. Economy," 2012 Meeting Papers 229, Society for Economic Dynamics.
  10. Yazid Dissou & Lilia Karnizova, 2012. "Emissions Cap or Emissions Tax? A Multi-sector Business Cycle Analysis," Working Papers 1210E, University of Ottawa, Department of Economics.

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