Equity Prices, Productivity Growth and 'The New Economy'

Jakob Madsen () and E Davis ()

Economic Journal, 2006, vol. 116, issue 513, 791-811

Abstract: The sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. This article establishes a rational expectations model of technology innovations and equity prices, which shows that under plausible assumptions, productivity advances can only have temporary effects on the fundamentals of equity prices. Using historical data on productivity of R&D capital, patent capital and fixed capital for 11 OECD countries, empirical evidence gives strong support for the model by suggesting that technological innovations indeed have only temporary effects on equity returns. Copyright 2006 The Authors. Journal compilation Royal Economic Society 2006.

Date: 2006
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Related works:
Working Paper: Equity Prices, Productivity Growth, and the 'New Economy' (2004)
Working Paper: Equity Prices, Productivity Growth and 'The New Economy (2004)
Working Paper: EQUITY PRICES, PRODUCTIVITY GROWTH, AND ‘THE NEW ECONOMY’ (2003)
Working Paper: EQUITY PRICES, PRODUCTIVITY GROWTH, AND ‘THE NEW ECONOMY’ (2003)
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