Creator

• McGrattan, Ellen R.
• Prescott, Edward C.

Series

• Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)

Issue number

• Vol. 24, No. 4

Date created

• 2000 Fall

Abstract

• The value of U.S. corporate equity in the first half of 2000 was close to 1.8 times U.S. gross national product (GNP). Some stock market analysts have argued that the market is overvalued at this level. We use a growth model with an explicit corporate sector and find that the market is correctly valued. In theory, the market value of equity plus debt liabilities should equal the value of productive assets plus debt assets. Since the net value of debt is currently low, the market value of equity should be approximately equal to the market value of productive assets. We find that the market value of productive assets, including both tangible and intangible assets and assets used outside the country by U.S. subsidiaries, is currently about 1.8 times GNP, the same as the market value of equity.

Related information

• Additional materials and M-files and Ftools

Corporate Author

• Federal Reserve Bank of Minneapolis. Research Department

Publisher

• Federal Reserve Bank of Minneapolis

Resource type

• Article

DOI

•  https://doi.org/10.21034/qr.2442

In Collection:

• Quarterly Review

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