IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0211001.html
   My bibliography  Save this paper

Can technological change explain the stock market collapse of 1974?

Author

Listed:
  • Adrian Peralta-Alva

    (Department of Economics, University of Minnesota & Research Department, Federal Reserve Bank of Minneapolis)

Abstract

This paper uses dynamic general equilibrium models to quantitatively test the idea that technical change caused the stock market collapse of the mid 1970's, its subsequent stagnation, and recovery. First, I consider the hypothesis that the arrival of information technologies (IT) rendered old capital obsolete, and led to a collapse of equity prices. I find that shocks necessary for the IT-revolution to cause the observed drop in Tobin's q imply a two-fold increase in aggregate investment, and a strong expansion in GDP and consumption. Such predictions are orthogonal to what one observes in the data. Next, I consider the hypothesis that the productivity slowdown of the mid 1970's caused an unexpected decrease in the growth rate of shareholders' income, and equity prices fell. This hypothesis is consistent with the behavior of aggregate quantities and it delivers a large decrease in the value of equities, but is not capable of producing the persistently low values of q that characterize the data. My analysis indicates that the main challenge for a general equilibrium explanation of stock market behavior resides in reconciling the movements of Tobin's q with those of aggregate investment.

Suggested Citation

  • Adrian Peralta-Alva, 2002. "Can technological change explain the stock market collapse of 1974?," Finance 0211001, University Library of Munich, Germany, revised 19 Nov 2002.
  • Handle: RePEc:wpa:wuwpfi:0211001
    Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; pages: 52
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0211/0211001.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    Technological change stock market 1974 Tobin's q;

    JEL classification:

    • G - Financial Economics
    • E - Macroeconomics and Monetary Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0211001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.