Staff Report 369

Back to Publication

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

Ellen R. McGrattan - Consultant
Edward C. Prescott - Senior Monetary Advisor

Revised September 2, 2010

Abstract
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.

RELATED PAPER: Staff Report 395 Technical Appendix: Unmeasured Investment and the Puzzling U.S. Boom in the 1990s


Published In: American Economic Journal: Macroeconomics (Vol. 2, No. 4, October 2010, pp. 88-123)

Download Paper (PDF)

Additional Files (FTP)

 
Related Links