Keywords: Investment, cost of capital, depreciation, computers
Abstract: Real equipment investment in the United States has boomed in
recent years, led by soaring investment in computers. We find that
traditional aggregate econometric models completely fail to capture the
magnitude of this recent growth--mainly because these models neglect to
address two features that are crucial (and unique) to the current investment
boom. First, the pace at which firms replace depreciated capital has
increased. Second, investment has been more sensitive to the cost of
capital. We document that these two features stem from the special behavior
of investment in computers and therefore propose a disaggregated approach.
This produces an econometric model that successfully explains the 1990s
equipment investment boom.
Full paper (245 KB PDF)
| Full paper (855 KB Postscript)
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Last update: March 24, 2000