Title:           Unmeasured Investment and the 1990s U.S. Boom

Date:           Thursday 1st June, 2006

Time:           6 pm

Venue:         Tyree Room, The Scientia, UNSW.

Hosted by:   Faculty of Commerce and Economics, The University of New South Wales

Professor Prescott holds the WP Carey Chair of Economics at the Arizona State University and is the senior advisor at the Federal Reserve Bank of Minneapolis. He previously held professorships at the University of Minnesota and Carnegie-Mellon University.

Professor Prescott and Finn Kydland received the 2004 Nobel Prize in Economics for “their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles.” Previously, he was appointed a Guggenheim Fellow in 1974-5; a Fellow of the Econometric Society in 1980 and in the American Academy of Arts and Sciences in 1992. He received the Erwin Plein Nemmers Prize in Economics in 2002.

Abstract

During the 1990s, market hours in the United States rose dramatically. The rise in hours occurred as gross domestic product (GDP) per hour was declining relative to its historical trend, an occurrence that makes this boom unique, at least for the postwar U.S. economy. We find that expensed plus sweat investment was large during this period and critical for understanding the movements in hours and productivity. Expensed investments are expenditures that increase future profits but, by national accounting rules, are treated as operating expenses rather than capital expenditures. Sweat investments are uncompensated hours in a business made with the expectation of realizing capital gains when the business goes public or is sold. Incorporating expensed and sweat equity into an otherwise standard business cycle model, we find that there was rapid technological progress during the 1990s, causing a boom in market hours and actual productivity.

Here are some of the background papers for the academic lecture:

• 'Why Did U.S. Market Hours Boom in the 1990s?', Federal Reserve Bank of Minneapolis - Research Department Staff Report 369, by Ellen R. McGrattan and Edward C. Prescott
• 'Productivity and the Post-1990 U.S. Economy', Federal Reserve Bank of Minneapolis - Research Department Staff Report 350, by Ellen R. McGrattan and Edward C. Prescott
• 'Expensed and Sweat Equity and the Macroeconomy', Federal Reserve Bank of Minneapolis - Research Department Working Paper 636, by Ellen R. McGrattan and Edward C. Prescott
• 'Why Do Americans Work So Much More Than Europeans?', Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 28, No. 1, July 2004, pp. 2–13, by Edward C. Prescott.

If you are interest to attend the lecture, please rsvp to fcevents@unsw.edu.au no later than Friday 12th May, 2006. Please feel free to extend this invitation to fellow colleagues and students who may be interested. Places are limited and will be allocated on a first come, first served basis.

The background to Professor Prescott’s research and visit can be viewed on his UNSW website.