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The Information Technology Revolution and the Puzzling Trends in Tobin’s average q

Author

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  • Adrian Peralta-Alva

    (University of Miami)

Abstract

A growing literature argues that the Information Technology rev- olution caused the stock market crash of 1973-1974, its subsequent stagnation and eventual recovery. This paper employs general equi- librium theory to test whether this good news hypothesis is consistent with the behavior of US equity prices and with the trends in corpo- rate output, investment and consumption. I …nd it is not. A model based exclusively on good news can make equity prices fall as much as in the data but it must also imply a strong economic expansion right when the US economy stagnated. However, when the observed productivity slowdown in old production methods is incorporated into the model consistency with major macroeconomic aggregates can be achieved and a 20% drop in equity values can be accounted for. (JEL E44, O33, O41)

Suggested Citation

  • Adrian Peralta-Alva, 2005. "The Information Technology Revolution and the Puzzling Trends in Tobin’s average q," Development and Comp Systems 0511003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpdc:0511003
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock Market; Tobin's q Technological Change; Productivity Slowdown 1974; Information Technology Revolution;
    All these keywords.

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Economic Systems

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