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Y2k

Author

Listed:
  • Stephanie Schmitt-Grohe

    (Rutgers University)

  • Martin Uribe

    (University of Pennsylvania)

Abstract

As the millennium 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 model the Y2K problem as an anticipated, permanent loss in output whose magnitude can be lessened by investing resources in advance. We embed the Y2K problem into a dynamic general equilibrium framework and show that 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 millennium 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.

Suggested Citation

  • Stephanie Schmitt-Grohe & Martin Uribe, 1998. "Y2k," Departmental Working Papers 199832, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:199832
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    File URL: http://www.sas.rutgers.edu/virtual/snde/wp/1998-32.pdf
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    Other versions of this item:

    • Stephanie Schmitt-Grohe & Martin Uribe, 1999. "Y2k," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 850-856, October.

    More about this item

    Keywords

    investment dynamics; Y2K problem;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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