Equity Prices, Productivity Growth, and the 'New Economy'
AbstractThe sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. This paper establishes a rational expectations model of technology innovations and equity prices, which shows that under plausible assumptions, productivity advances can only have temporary effects on the fundamentals of equity prices. Using historical data on productivity of R&D capital, patent capital and fixed capital for 11 OECD countries, empirical evidence give strong support for the model by suggesting that technological innovations indeed have only temporary effects on equity returns.
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-05.
Length: 45 pages
Date of creation: Feb 2004
Date of revision:
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new economy; productivity; economic growth; equity prices;
Other versions of this item:
- Jakob B Madsen & E Philip Davis, 2006. "Equity Prices, Productivity Growth and 'The New Economy'," Economic Journal, Royal Economic Society, vol. 116(513), pages 791-811, 07.
- Jakob B Madsen & E Philip Davis, 2003. "Equity Prices, Productivity Growth, And ‘The New Economy’," Economics and Finance Discussion Papers 03-04, Economics and Finance Section, School of Social Sciences, Brunel University.
- Jakob B. Madsen & E. Philip Davis, 2004. "Equity Prices, Productivity Growth and 'The New Economy," FRU Working Papers 2004/11, University of Copenhagen. Department of Economics. Finance Research Unit.
- Jakob B Madsen & E Philip Davis, 2003. "Equity Prices, Productivity Growth, And ‘The New Economy’," Public Policy Discussion Papers 03-04, Economics and Finance Section, School of Social Sciences, Brunel University.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G3 - Financial Economics - - Corporate Finance and Governance
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-23 (All new papers)
- NEP-CFN-2004-02-23 (Corporate Finance)
- NEP-FMK-2004-02-23 (Financial Markets)
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