[OPE-L:5399] Re: Re: the bursting bubble and the U.S. working class

From: Paul (clyder@gn.apc.org)
Date: Mon Apr 23 2001 - 16:26:12 EDT

On Mon, 23 Apr 2001, you wrote:
> On Tue, 17 Apr 2001, Gerald_A_Levy wrote:
> > * What, if anything, is different about the current
> >   bubble in the U.S. stock market?
> What bubble?  I'm teaching econometrics this semester, and to
> illustrate the "error correction" model specification I ran an error
> correction model of the Dow-Jones average, using quarterly data,
> 1959-2000.  I hypothesized that in equilibrium the Dow ought to be
> proportional to the value of an annuity defined as the value of
> after-tax corporate profits divided by a suitable long-term interest
> rate (i.e. the present value of the hypothetical stream of current
> profits, maintained indefinitely).  The model gave an equilibrium
> proportionality factor of about 0.90 -- i.e. the "right" value for the
> Dow index is about 90% of the present value of the corporate profit
> stream, in billions of dollars.  We're currently just about at that.
> For most of the 1990s the Dow was below equilibrium, and busy catching
> up.
> Allin Cottrell.
Did you take a constant rate of interest or the long run money market

Paul Cockshott

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