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Unmeasured investment and the puzzling U.S. boom in the 1990s

  • Ellen R. McGrattan
  • Edward C. Prescott

For the 1990s, the basic neoclassical growth model predicts a depressed economy, when in fact the U.S. 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 micro and macro evidence motivating our extension, and the theory’s predictions are in conformity with U.S. national accounts and capital gains. We compare accounting measures with corresponding measures for our model economy. We find that standard accounting measures greatly understate the 1990s boom. ; Earlier title: Why did U.S. market hours boom in the 1990s? ; Earlier title: Unmeasured investment and the 1990s U.S. hours boom

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 369.

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Date of creation: 2009
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Handle: RePEc:fip:fedmsr:369
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