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Stock Price Fluctuations and Productivity Growth

Author

Listed:
  • Diego Comin

    (Dartmouth College)

  • Ana Maria Santacreu

    (Federal Reserve Bank of Saint Louis and)

  • Mark Gertler

    (New York University)

  • Phuong Ngo

    (Cleveland State University)

Abstract

This paper studies the relationship between stock prices and fluctuations in TFP. We document a strong predictability of lagged stock price growth on future TFP growth at medium horizons. To explore the sources of this co-movement, we develop a one-sector real business model augmented to allow for (i) endogenous technology through R&D and adoption, and (ii) exogenous shocks to the risk premium. Model simulations produce predictability patterns quantitatively similar to the data. A version of the model with exogenous technology produces no predictability of TFP growth. Decomposing historical TFP, we show that the predictability uncovered in the data is fully driven by the endogenous component of TFP. This finding suggests that fluctuations in risk premia impact TFP growth through their effect on the speed of technology diffusion instead of responding to exogenous fluctuations in future TFP.

Suggested Citation

  • Diego Comin & Ana Maria Santacreu & Mark Gertler & Phuong Ngo, 2018. "Stock Price Fluctuations and Productivity Growth," 2018 Meeting Papers 1147, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1147
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    References listed on IDEAS

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      by chris in Stumbling and Mumbling on 2018-09-25 10:15:39

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