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The Slowdown and Asset Prices

In: The Great Economic Slowdown

Author

Listed:
  • Edmund Phelps

    (Columbia University)

  • Hian Teck Hoon

    (Singapore Management University)

  • Gylfi Zoega

    (University of Iceland)

Abstract

One of the stylized facts of economic development in recent decades is the booming stock market. The implications of the slowdown in productivity growth for asset prices are derived using the “Austrian model,” where capital is produced only with labor in the investment-good sector and the consumer good is produced using only capital. A fall in the rate of both productivity and population growth lowers the real rate of interest and raises the price of capital by increasing the supply of wealth. In contrast, an increase in government debt drives up the real rate of interest, making the price of capital drop.

Suggested Citation

  • Edmund Phelps & Hian Teck Hoon & Gylfi Zoega, 2023. "The Slowdown and Asset Prices," Springer Books, in: The Great Economic Slowdown, chapter 3, pages 31-48, Springer.
  • Handle: RePEc:spr:sprchp:978-3-031-31441-4_3
    DOI: 10.1007/978-3-031-31441-4_3
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