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Computers and growth with costs of adjustment: will the future look like the past?

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  • Michael T. Kiley

Abstract

This paper augments the traditional growth accounting framework by including a common specification of investment adjustment costs and uses the new framework to examine the past and likely future growth in nonfarm business output in the United States. The inclusion of adjustment costs can have large effects on the growth-accounting exercise when a new investment good is introduced--such as computers in the last thirty years. The new framework indicates that the contribution of computers to economic growth has been held down by the large adjustment costs required to incorporate a new investment good into the economy's capital stock. Alternative calibrations of the model suggest that these adjustment costs have lowered measured growth in multifactor productivity since 1974 by about 1/2 percentage point--a nontrivial percentage of the productivity slowdown. Combining the adjustments to multifactor productivity and the impact of computers implied by the model with adjustment costs boosts long-run growth in output per hour 3/4 percentage point above the 1974-1991 average.

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File URL: http://www.federalreserve.gov/pubs/feds/1999/199936/199936abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1999/199936/199936pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-36.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-36

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Keywords: Computers ; Productivity;

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  1. Kevin A. Hassett, 2009. "Tax Policy and Investment," Books, American Enterprise Institute, number 24215, 9.
  2. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc.
  3. Jeremy Greenwood & Boyan Jovanovic, 2000. "Accounting for Growth," RCER Working Papers 475, University of Rochester - Center for Economic Research (RCER).
    • Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224 National Bureau of Economic Research, Inc.
  4. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  5. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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