Unmeasured Investment and the Puzzling U.S. Boom in the 1990s

Ellen McGrattan and Edward Prescott

No 13499, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The basic neoclassical growth model accounts well for the postwar cyclical behavior of the U.S. economy prior to the 1990s, provided that variations in population growth, depreciation rates, total factor productivity, and taxes are incorporated. For the 1990s, the 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 compelling micro and macro evidence for our extension, and the predictions of the theory are in conformity with U.S. national products, incomes, and capital gains. We use the theory to compare current accounting measures for labor productivity and investment with the corresponding measures for the model economy with intangible investment. Our findings show that standard accounting measures greatly understate the boom in productivity and investment.

JEL-codes: E24 E32 O47 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Ellen R. McGrattan & Edward C. Prescott, 2010. "Unmeasured Investment and the Puzzling US Boom in the 1990s," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 88-123, October.

Downloads: (external link)
http://www.nber.org/papers/w13499.pdf (application/pdf)

Related works:
Journal Article: Unmeasured Investment and the Puzzling US Boom in the 1990s (2010)
Working Paper: Unmeasured investment and the puzzling U.S. boom in the 1990s (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:13499

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13499

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().