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The boom and bust in information technology investment

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  • Mark C. Doms

Abstract

The growth rate of business investment in information technology boomed in the 1990s and 2000 before plunging in 2001. This boom and bust raises some natural questions: what were the reasons for the accentuated swings in growth rates, and, more importantly, what do those reasons portend for the future of IT investment? Much of the increase in IT investment in the late 1990s appears to be attributable to falling prices of IT goods, which in turn is largely attributable to technological change. However, IT investment was much higher in 1999 and 2000 than a model would predict. Another reason for the high growth rates in IT investment was that expectations were too high, especially in two sectors of the economy, telecommunications services and the dot-com sector. Looking ahead, technological change in the IT area will likely continue to move quickly, in large part because large amounts of research and development are being devoted to finding further technological breakthroughs.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (2004)
Issue (Month): ()
Pages: 19-34

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Handle: RePEc:fip:fedfer:y:2004:p:19-34

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Keywords: Information technology ; Capital investments ; Business cycles;

References

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  1. Stephen D. Oliner & Daniel E. Sichel, 2002. "Information technology and productivity: where are we now and where are we going?," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 15-44.
  2. Jaison R. Abel & Ernst R. Berndt & Alan G. White, 2003. "Price Indexes for Microsoft's Personal Computer Software Products," NBER Working Papers 9966, National Bureau of Economic Research, Inc.
  3. Mark E. Doms & Wendy E. Dunn & Stephen D. Oliner & Daniel E. Sichel, 2004. "How Fast Do Personal Computers Depreciate? Concepts and New Estimates," NBER Working Papers 10521, National Bureau of Economic Research, Inc.
  4. Mark Doms & Chris Forman, 2003. "Prices for local area network equipment," Working Paper Series, Federal Reserve Bank of San Francisco 2003-13, Federal Reserve Bank of San Francisco.
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Cited by:
  1. Agarwal, Sumit & Chiu, I-Ming & Souphom, Victor & Yamashiro, Guy M., 2011. "The efficiency of internal capital markets: Evidence from the Annual Capital Expenditure Survey," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 51(2), pages 162-172, May.
  2. Ellen R. McGrattan & Edward C. Prescott, 2007. "Unmeasured Investment and the Puzzling U.S. Boom in the 1990s," NBER Working Papers 13499, National Bureau of Economic Research, Inc.
  3. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2005. "Can financial innovation help to explain the reduced volatility of economic activity?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-54, Board of Governors of the Federal Reserve System (U.S.).

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