TY - UNPB

T1 - Equity Prices, Productivity Growth, and the 'New Economy'

AU - Madsen, Jakob Brøchner

AU - Davis, E. Philip

N1 - JEL Classification: G120, G3, O4

PY - 2004

Y1 - 2004

N2 - 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.

AB - 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.

M3 - Working paper

BT - Equity Prices, Productivity Growth, and the 'New Economy'

PB - Department of Economics, University of Copenhagen

ER -