TY  - JOUR
AU  - McGrattan,Ellen R.
AU  - Prescott,Edward C.
TI  - Unmeasured Investment and the Puzzling U.S. Boom in the 1990s
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13499
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/w13499
L1  - http://www.nber.org/papers/w13499.pdf
N1  - Author contact info:
Ellen McGrattan
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
Tel: 612/204-5523
Fax: 612/204-5515
E-Mail: erm@mcgrattan.mpls.frb.fed.us

Edward C. Prescott
Arizona State University
Economics Department
P. O. Box 879801
Tempe, AZ 85287-9801
E-Mail: edward.prescott@asu.edu
AB  - 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.
ER  -