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EQUITY PRICES, PRODUCTIVITY GROWTH, AND ‘THE NEW ECONOMY’

Jakob Madsen and E Davis ()

Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: The increase in equity prices over the 1990s has to a large degree been attributed to permanently higher productivity growth that is derived from the ‘new economy’ and related research and development (R&D) expenditures. This paper 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 fundamentals of equity prices. Using data on R&D capital and fixed capital productivity for 11 OECD countries, the evidence give strong support for the model by suggesting that technology innovations indeed have only temporary effects on equity returns.

Pages: 31 pages
Date: 2003-02
New Economics Papers: this item is included in nep-eff and nep-fin
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Related works:
Journal Article: Equity Prices, Productivity Growth and 'The New Economy' (2006)
Working Paper: Equity Prices, Productivity Growth, and the 'New Economy' (2004) Downloads
Working Paper: Equity Prices, Productivity Growth and 'The New Economy (2004) Downloads
Working Paper: EQUITY PRICES, PRODUCTIVITY GROWTH, AND ‘THE NEW ECONOMY’ (2003) Downloads
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