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The Information Technology Revolution and the Puzzling Trends in Tobin’s average q

Author

Listed:
  • Adrian Peralta-Alva

    (University of Miami)

Abstract
A growing literature argues that the Information Technology rev- olution caused the stock market crash of 1973-1974, its subsequent stagnation and eventual recovery. This paper employs general equi- librium theory to test whether this good news hypothesis is consistent with the behavior of US equity prices and with the trends in corpo- rate output, investment and consumption. I …nd it is not. A model based exclusively on good news can make equity prices fall as much as in the data but it must also imply a strong economic expansion right when the US economy stagnated. However, when the observed productivity slowdown in old production methods is incorporated into the model consistency with major macroeconomic aggregates can be achieved and a 20% drop in equity values can be accounted for. (JEL E44, O33, O41)

Suggested Citation

  • Adrian Peralta-Alva, 2005. "The Information Technology Revolution and the Puzzling Trends in Tobin’s average q," Macroeconomics 0511007, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0511007
    Note: Type of Document - pdf; pages: 35
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0511/0511007.pdf
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    References listed on IDEAS

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    Cited by:

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    2. Sami Alpanda, 2012. "Taxation, collateral use of land, and Japanese asset prices," Empirical Economics, Springer, vol. 43(2), pages 819-850, October.

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    More about this item

    Keywords

    Information Technology Revolution; Stock Market; Productivity Slowdown; Tobin's q; 1974; Crash;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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