Productivity and the Post-1990 U.S. Economy

In this paper, we show that ignoring corporate intangible investments gives a distorted picture of the post-1990 U.S. economy. In particular, ignoring intangible investments in the late 1990s leads one to conclude that productivity growth was modest, corporate profits were low, and corporate investment was at moderate levels. In fact, the late 1990s was a boom period for productivity growth, corporate profits, and corporate investment. † Ellen R. McGrattan is a monetary advisor at the Federal Reserve Bank of Minneapolis and an adjunct professor of economics at the University of Minnesota. Edward C. Prescott is the W. P. Carey Professor of Economics at Arizona State University and a senior monetary advisor at the Federal Reserve Bank of Minneapolis. Data are available at our website, www.minneapolisfed.org. The authors thank Ricardo Caballero for helpful comments on an earlier draft. They also thank the National Science Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.