Using Investment Data to Assess the Importance of Price Mismeasurement
NBER Working Paper No. 10627
This paper presents a new approach to assess the role of price mismeasurement in the productivity slowdown. I invert the firm's investment decision to identify the embodied and disembodied components of productivity growth. With a Cobb-Douglas production function, output price mismeasurement only should affect the latter. Contrary to the mismeasurement hypothesis, I find that in the Post-War period, disembodied productivity grew faster in the hard-to-measure than in the non-manufacturing easy-to-measure sectors, and that disembodied productivity slowed down less in the hard-to-measure than in the easy-to-measure sectors since the 70's. These results hold a fortiori when capital and labor are complements.
Published: Comin, Diego A. "Using Investment Data To Access The Importance Of Price Mismeasurement." B.E. Journal of Macroeconomics, 2006, v6(1), Article 7.