Asset Returns and Economic Growth

Dean Baker, J. Bradford Delong and Paul Krugman
Additional contact information
Dean Baker: Center for Economic and Policy Research
J. Bradford Delong: University of California, Berkeley

Brookings Papers on Economic Activity, 2005, vol. 36, issue 1, 289-330

Abstract: America is probably facing a slowdown in the rate of natural population increase and possibly a slowdown in productivity growth. We argue that, if these two factors depress the rate of future economic growth, one cannot assume that the past performance of asset returns is indicative of future results. Simple standard closed-economy growth models predict that a growth slowdown will likely lower the marginal product of capital and thus the long-run rate of return. Moreover, if current asset valuations represent rational expectations, simple arithmetic shows that it is almost impossible for past rates of return to continue through a growth slowdown. In standard models at least, only a large shift in the income distribution toward capital, or future current account surpluses that are larger and more persistent than those that nineteenth-century Britain sustained for generations, give promise for reconciling a future slowdown with a continuation of historical asset returns.

Keywords: macroeconomics; Asset Returns; Economic Growth (search for similar items in EconPapers)
JEL-codes: E21 E44 G12 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://www.brookings.edu/wp-content/uploads/2005/01/2005a_bpea_baker.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bin:bpeajo:v:36:y:2005:i:2005-1:p:289-330

Access Statistics for this article

More articles in Brookings Papers on Economic Activity from Economic Studies Program, The Brookings Institution Contact information at EDIRC.
Bibliographic data for series maintained by Haowen Chen ().