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Structural booms

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  • Edmund Phelps
  • Gylfi Zoega

Abstract

Summary Structural booms Productive expectations and assets valuationsThe paper proposes a new interpretation of long swings in economic activity. Instead of deviations from a trend growth path explained by misperceptions, long swings are seen as detours in the path itself provoked by rare and deep changes in expectations of future productivity. And such changes are approximately captured by swings in stock markets. In a large sample of OECD countries, the paper finds long-term historical relationships between share prices and employment or the rate of unemployment. The results suggest that the recent strength of a nation’s stock markets and the responsiveness of employment are related to its institutions. In particular, corporatist institutions are likely to impede or obstruct entrepreneurs from taking advantage of expected productivity improvements. In contrast, a well-developed stock market – in addition to a young, well-educated labour force – may help both in the creation of profit opportunities as well as in enabling and emboldening firms to increase hiring.— Edmund Phelps and Gylfi Zoega

Suggested Citation

  • Edmund Phelps & Gylfi Zoega, 2001. "Structural booms," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(32), pages 84-126.
    • Handle: RePEc:oup:ecpoli:v:16:y:2001:i:32:p:84-126.
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    File URL: http://hdl.handle.net/10.1111/1468-0327.00071
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    Cited by:

    1. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "The (Ir)Relevance Of The Nru For Policy Making: The Case Of Denmark," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 369-392, July.
    2. Besancenot, Damien & Vranceanu, Radu, 2009. "Multiple equilibria in a firing game with impartial justice," Labour Economics, Elsevier, vol. 16(3), pages 262-271, June.
    3. Bharat Trehan, 2003. "Productivity shocks and the unemployment rate," Economic Review, Federal Reserve Bank of San Francisco, pages 13-27.
    4. Phelps, Edmund & Zoega, Gylfi, 2013. "Corporatism and job satisfaction," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 35-47.

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