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Online Appendix to Y2K

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Author Info

  • Stephanie Schmitt-Grohe

    (Rutgers University)

  • Martin Uribe

    (University of Pennsylvania)

Abstract

As the millenium draws to an end, the threat posed by the Year 2000 (Y2K) problem is inducing vast private and public spending on its remediation. In this paper, we embed the Y2K problem into a dynamic general equilibrium framework. We model the Y2K problem as an anticipated, permanent loss to output whose magnitude can be lessened by investing resources in advance. Our model replicates three observed characteristics of the dynamics triggered by the Y2K bug: (1) Precautionary investment: investment in solving the Y2K problem begins before the year 2000; (2) Investment delay: although economic agents have been aware of the Y2K problem since the 1960s, investment did not begin until recently; (3) Investment acceleration: as the new millenium approaches, the amount of resources allocated to solving the Y2K problem increases. Furthermore, the model predicts that output net of resources devoted to solving the Y2K problem need not decline in 2000.

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Bibliographic Info

Paper provided by Review of Economic Dynamics in its series Technical Appendices with number grohe99.

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Length: 13 pages
Date of creation: 27 Aug 1998
Date of revision:
Handle: RePEc:red:append:grohe99

Note: The original article was published in the Review of Economic Dynamics, volume 2 (October 1999), pages 850-856.
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Keywords: Y2K problem; investment dynamics;

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