The economic costs of US stock mispricing
R. Bird,
Gordon Menzies,
Peter Dixon and
Maureen Rimmer
Authors registered in the RePEc Author Service: Ron Bird and
Richard M. Bird
Journal of Policy Modeling, 2011, vol. 33, issue 4, 552-567
Abstract:
The USAGE model for the United States is used to quantify economic costs due to stock mispricing, made operational by shocking Tobin's q. The simulations quantify a potentially large impact even in the most favorable environment, where export demand holds up, and, the dollar is pro-cyclical. A two-year investment boom in two sectors increases consumption by a Net Present Value (NPV) amount of nearly one per cent, due to a positive investment externality onto the US terms of trade. If the investment is wasted, however, the consumption loss is nearly one-half of a per cent. A 5-year 'capital strike' across the whole economy subsequent to the boom - mimicking financial distress from a burst bubble - shaves around 10 per cent off consumption. Given these significant costs associated with "boom" and "bust" equity markets, we consider some, policy options that might result in greater stability in these markets.
Keywords: Financial; crises; Exchange; rates; Macroeconomic; modeling; Stock; market (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893810001043
Full text for ScienceDirect subscribers only
Related works:
Working Paper: The Economic Costs of US Stock Mispricing (2010) 
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:eee:jpolmo:v:33:y:2011:i:4:p:552-567
Access Statistics for this article
Journal of Policy Modeling is currently edited by A. M. Costa
More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().