The Economic Costs of US Stock Mispricing
AbstractThe USAGE model for the United States is used to quantify economic costs due to stock mispricing, made operational by shocking Tobin's q. The simulations quantify a potentially large impact even in the most favorable environment, where export demand holds up, and, the dollar is pro cyclical. A two year investment boom in two sectors increases consumption by a Net Present Value (NPV) amount of nearly one per cent, due to a positive investment externality onto the US terms of trade. If the investment is wasted, however, the consumption loss is nearly one half of a per cent. A 5 year 'capital strike' across the whole economy subsequent to the boom - mimicking financial distress from a burst bubble - shaves around 10 per cent off consumption.
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Bibliographic InfoPaper provided by Monash University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number g-204.
Date of creation: Jul 2010
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Publication status: Published in Journal of Policy Modeling, Elsevier, vol. 33(4), pages 552-567, July.
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Financial crises; exchange rates; macroeconomic modeling; stock market;
Other versions of this item:
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- G01 - Financial Economics - - General - - - Financial Crises
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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