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Stock mispricing can lead to misallocation and wastage of capital both inter-temporally and across sectors. The USAGE model for the United States is used to quantify economic costs under a number of mispricing scenarios, made operational by shocking Tobin’s q. A two-year Communications and Technology investment boom increases consumption by a Net...
Contexts in source publication
Context 1
... The positive investment each year leads to real exchange rate appreciation and a fall in net exports. When the shock is reversed, investment falls for two years, the exchange rate weakens and net exports recover ( Figure 3). ...
Context 2
... the decline in investment the subsequent depreciation in the exchange rate does not occur because net exports do not need to rise (Figure 3). In scenario 3, we recognise the importance of 'capital strikes' whereby a spectacular unwinding of a bubble leads to a flight to cash, and a difficulty in obtaining funding for investment. ...
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