To keep our analysis focused, we abstract from other channels emphasized in the literature through which expectations may have an immediate impact on current economic activity such as time-to-build, capital adjustment costs, or consumption smoothing. Also, it should be clear that we do not believe that the economic expansion experienced by the . economy during the second half of the 1990s was entirely driven by expectations of future higher productivity growth. Rather, we see our explanation as complementary to the actual improvement in firm level technology which, for simplicity, we omit from the analysis. Section 1 reviews the main events experienced by the . economy in the 1990s. Section 2.
