Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82041
Authors: 
Madsen, Jakob B.
Davis, E. Philip
Year of Publication: 
2004
Series/Report no.: 
EPRU Working Paper Series 2004-05
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.
Subjects: 
new economy
productivity
economic growth
equity prices
JEL: 
G12
G3
O4
Document Type: 
Working Paper

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