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

By Ellen R Mcgrattan, Edward C. Prescott. 2007

214 citations recorded by the source corpus.

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.

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Citations in the corpus

Organization Capital and Mergers and Acquisitions (2017, unknown): “…example, Marshall (1930), Arrow (1962), Rosen (1972), Jovanovic (1979), Prescott and Visscher (1980), Becker (1993), Ericson and Pakes (1995), Hall (2000), Tomer (1987), Jovanovic and Rousseau (2001), Atkeson and Kehoe (2005), McGrattan and Prescott (2010), and Bloom, Sadun, and Van Reenen (2012).”
Toward a Quantitative General Equilibrium Asset Pricing Model with Intangible Capital (2013, unknown): “However, we note that both our empirical evidence and the specification of φj are consistent with the learning model of Pastor and Veronesi (2009). In their economy, young firms are subject to substantial idiosyncratic risks but have very little exposure to aggregate shocks.”
Emissions Cap or Emissions Tax? A Multi-sector Business Cycle Analysis (2016, background): “1 Yet, a consensus has not been reached on which policy works best (Metcalf, 2009). The present study contributes to the debate by examining the performance of the cap and the tax in the presence of macroeconomic uncertainty. Accounting for macroeconomic uncertainty is important for two reasons. Fir”
Models of Growth and Firm Heterogeneity (2010, unknown): “[59] McGrattan, E.”
Growth, Slowdowns, and Recoveries (2019, unknown): “Finally, our paper is connected to McGrattan and Prescott (2010) who study the role of intangible investment for explaining the economic boom of the 1990s.”
Labor Share Decline and Intellectual Property Products Capital (2020, unknown): “In terms of capital income shares, we find that BEA IPP capital accounts for 5.7% of total income in the 2000s, while this figure is 7.6% in McGrattan and Prescott (2010).”