Testing for a New Economy in the 1990s

This paper examines how much structural change there was in the U.S. economy in the last half of the 1990s. The results are consistent with the hypothesis that there was only one major structural change, namely the huge increase in stock prices relative to earnings. All other large changes can be explained by this change. There is no obvious reason for the large increase in stock prices relative to earnings. Increased productivity growth does not appear to be an answer since the data show that there was only a modest increase in long run productivity growth in the last half of the 1990s. Also, earnings growth and the share of earnings in the economy were not unusually large