Investment and Growth in an Econometric Model of the United States
In its complete form, our Annual Growth Model is a synthesis of Keynesian and neoclassical determinants of actual and potential growth and of prices, production, and employment. In this paper we utilize only the supply side of the model to provide new quantitative estimates of the natural growth path of the U.S. economy since the Korean War and corresponding projections to the end of the century. The past and future contributions of business-fixed capital formation to productivity growth are quantified, and we assess the prospects for augmenting future growth through capital deepening. The complete model includes monetary and fiscal determinants of aggregate demand, but since we are abstracting from the demand side in this paper, nothing can be said here about nominal GNP, the price level, or the policy tradeoffs among inflation, unemployment, and growth targets.
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