Working Paper: CEPR ID: DP5176
Authors: Paul Beaudry; Franck Portier
Abstract: This paper uses aggregate Japanese data and sectoral US data to explore the properties of the joint behaviour of stock prices and total factor productivity (TFP) with the aim of highlighting data patterns that are useful for evaluating business cycle theories. The approach used follows that presented in Beaudry and Portier (2004b). The main findings are that (i) in both Japan and the US, innovations in stock prices that are contemporaneously orthogonal to TFP precede most of the long run movements in total factor productivity, and (ii) such stock prices innovations do not affect US sectoral TFPs contemporaneously, but do precede TFP increases in those sectors that are driving US TFP growth, namely durable goods, and among them equipment sectors.
Keywords: business cycle; productivity shocks; stock prices
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| innovations in stock prices (G17) | long-run movements in TFP (O49) |
| innovations in stock prices (G17) | increases in TFP in sectors driving U.S. TFP growth (O49) |
| stock prices orthogonal to TFP (F16) | TFP contemporaneously (F16) |
| stock prices (G12) | TFP in certain sectors (F16) |