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Testing for a New Economy in the 1990s


  • Ray Fair


This paper examines how much structural change there was in the U.S. economy in the last half of the 1990s. The results are consistent with the hypothesis that there was only one major structural change, namely the huge increase in stock prices relative to earnings. All other large changes can be explained by this change. There is no obvious reason for the large increase in stock prices relative to earnings. Increased productivity growth does not appear to be an answer since the data show that there was only a modest increase in long run productivity growth in the last half of the 1990s. Also, earnings growth and the share of earnings in the economy were not unusually large.

Suggested Citation

  • Ray Fair, 2002. "Testing for a New Economy in the 1990s," Yale School of Management Working Papers ysm323, Yale School of Management, revised 01 Aug 2007.
  • Handle: RePEc:ysm:somwrk:ysm323

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    References listed on IDEAS

    1. William D. Nordhaus, 2002. "Productivity Growth and the New Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 211-265.
    2. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
    3. D. W. K. Andrews, 2003. "End-of-Sample Instability Tests," Econometrica, Econometric Society, vol. 71(6), pages 1661-1694, November.
    4. Donald W. K. Andrews & Ray C. Fair, 1988. "Inference in Nonlinear Econometric Models with Structural Change," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 615-640.
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    More about this item


    New Economy; Stability Tests;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection


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