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Was Y2K behind the business investment boom and bust?

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  • Kevin L. Kliesen

Abstract

During the latter part of the 1990s, U.S. economic growth was boosted by sizable increases in business purchases of information processing equipment and software, otherwise known as high-tech capital goods. Beginning in 2000, though, firms began to curtail these expenditures; by 2001, high-tech and other forms of business investment were falling sharply. Indeed, much of the downturn in the growth of U.S. economic activity can be traced to the sharp decline in investment spending. Several explanations have been offered, from the acceleration in labor productivity—the so-called “New Economy” story—to the stock market surge and subsequent collapse. One explanation that has not been explored in much detail is the surge in business purchases of hardware and software in preparation for the century date change (Y2K). Because many information processing systems and much of the hardware and software were not Y2K compliant as late as 1998, it was thought that business investment in high-tech equipment and software would increase appreciably to fix this problem. Although solid Y2K spending data are lacking, the evidence presented in this paper indicates that the magnitude and timing of Y2K-related expenditures make it unlikely that the investment boom and bust was a Y2K event.

Suggested Citation

  • Kevin L. Kliesen, 2003. "Was Y2K behind the business investment boom and bust?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-42.
  • Handle: RePEc:fip:fedlrv:y:2003:i:jan:p:31-42:n:v.85no.1
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    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/03/01/Kliesen.pdf
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    References listed on IDEAS

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    1. Eric French & Thomas H. Klier & David B. Oppedahl, 2002. "Is there still an investment overhang, and if so, should we worry about it?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue May.
    2. Kevin J. Stiroh & Dale W. Jorgenson, 1999. "Information Technology and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 109-115, May.
    3. Karl Whelan, 2000. "A guide to the use of chain aggregated NIPA data," Finance and Economics Discussion Series 2000-35, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Jonathan McCarthy, 2004. "What investment patterns across equipment and industries tell us about the recent investment boom and bust," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(May).

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