Structural booms

E. Phelps*, G. Zoega

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

26 Citations (Scopus)


The paper proposes a new interpretation of long swings in economic activity. Instead of deviations from a trend growth path explained by misperceptions, long swings are seen as detours in the path itself provoked by rare and deep changes in expectations of future productivity. And such changes are approximately captured by swings in stock markets. In a large sample of OECD countries, the paper finds long-term historical relationships between share prices and employment or the rate of unemployment. The results suggest that the recent strength of a nation's stock markets and the responsiveness of employment are related to its institutions. In particular, corporatist institutions are likely to impede or obstruct entrepreneurs from taking advantage of expected productivity improvements. In contrast, a well-developed stock market - in addition to a young, well-educated labour force may help both in the creation of profit opportunities as well as in enabling and emboldening firms to increase hiring.

Original languageEnglish
Pages (from-to)83-126
Number of pages44
JournalEconomic Policy
Issue number32
Publication statusPublished - 2001


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