Equity Prices, Productivity Growth and 'The New Economy

Jakob Madsen and E Davis ()

No 2004/11, FRU Working Papers from University of Copenhagen. Department of Economics. Finance Research Unit

Abstract: The sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. 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 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 give strong support for the model by suggesting that technological innovations indeed have only temporary effects on equity returns.

Keywords: new economy; productivity; economic growth; equity prices (search for similar items in EconPapers)
JEL-codes: G12 G3 O4 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2004-10
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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)
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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