An analysis of trends in the intensity of U.S. capital formation and their determinants

This article introduces a measure of capital formation that is a composite of the gross investment-output ratio and the average life of investment goods. This measure is shown to be systematically related to future levels of the capital-output ratio, as the net investment-output ratio by itself is not. Historical values of this indicator and its components are presented and analyzed. Econometric techniques are then used to determine whether or not these trends can be explained by interest rates and other economic factors. Finally, these results and their implications for the U.S. economy are analyzed.