tailieunhanh - Stock market boom and the productivity gains of the 1990s

London’s role as the pre-eminent financial centre in Europe has served to create a depth and breadth of markets that underpins demand for office space in both the City and its surrounding sub-markets in Docklands and Midtown. Finance, insurance and real estate (“FIRE”) employment in London (Figure 5) has shown a per annum increase since the early 1980s, mirroring the increase in stock. Approximately 41% of City office space is simultaneously owned and occupied by firms in the FIRE sector, while some 57% is accounted for by financial and business services firms. Many of the latter, including legal and. | Stock market boom and the productivity gains of the 1990S Urban Jermann Vincenzo Quadrini University of Pennsylvania New York University April 30 2002 Abstract Together with a sense of entering a New Economy the US experienced in the second half of the 1990s an economic expansion a stock market boom a financing boom for new firms and productivity gains. In this paper we propose an interpretation of these events within a general equilibrium model with financial frictions and decreasing returns to scale in production. We show that the mere prospect of high future productivity growth can generate sizable gains in current productivity as well as the other above mentioned events. Introduction During the second half of the 1990s the United States experienced the continuation of one of the longest economic expansions. The distinguishing characteristics of this period can be summarized as follows. 1. High growth rates of output employment investment and wages. 2. High growth rates of labor productivity. 3. A stock market boom. 4. A financing boom for new and expanding firms. 5. A sense of moving towards a New Economy . 1 In this paper we propose an interpretation of these events in which the prospect of a New Economy plays a key role in generating the other events. More specifically we show that the mere prospect of high future productivity growth can generate sizable gains in current productivity as well as an economic expansion a stock market boom and a financing boom for new firms. There are two main ingredients to our story financing constraints due to limited contract enforceability and firm-level diminishing returns to scale. Financing constraints generate an endogenous size distribution for firms. Diminishing returns make aggregate productivity dependent on the size distribution of firms. In particular a more concentrated firm-size distribution results in higher aggregate labor productivity. In our model an initial improvement in the prospects for having higher .