Working Paper: NBER ID: w12138
Authors: Eugene N. White
Abstract: This paper surveys the twentieth century booms and crashes in the American stock market, focusing on a comparison of the two most similar events in the 1920s and 1990s. In both booms, claims were made that they were the consequence a "new economy" or "irrational exuberance." Neither boom can be readily explained by fundamentals, represented by expected dividend growth or changes in the equity premium. The difficulty of identifying the fundamentals implies that central banks would not be successful in preventing pre-emptive policies, although they still would have a critical role to play in preventing crashes from disrupting the payments system or sparking an intermediation crisis.
Keywords: No keywords provided
JEL Codes: E5; G1; N1; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Psychological factors (D91) | Stock market booms (E32) |
| Fundamentals (expected dividend growth) (G35) | Stock market performance (G10) |
| Federal Reserve's ability to respond to booms (E58) | Identification of true fundamentals (C50) |
| Stock market performance (G10) | True fundamentals (Y20) |