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Nikkei Bubble on Slate

…real vs nominal…
Matt Yglesias has a Slate post on the 1987-91 Nikkei bubble. His core graph, drawn from the St. Louis FRED database, is on the left; I’ve shorted the time period to go from 1965 through 2001 to match the SNA1968 nominal GDP time series. The same series, divided by nominal GDP, is below. There’s still quite a bubble, but relative to GDP stock prices had been even higher in the early 1960s — and except around the time of the oil crisis tracked nominal GDP from 1967 until 1985.

…mike smitka…

nikkei real

[Data: for nominal GDP I used the seasonally corrected series available at the Economic and Social Research Institute. I set the nominally adjusted series equal to the Nikkei series for 2013.Q1. I used the SNA93 series from 1994.Q1 and the SNA68 series for all earlier dates, again adjusting so that the old SNA series would generate the same point in the first observation where they overlap.]

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1 Comment

  1. Jun Okumura says:

    The following is what this non-economist is thinking after going over this post.

    I think this indicates that the stock market is driven by expectations over the nominal GDP growth rate and that those expectations are very much driven by what’s going on in the here-and-now. (I’m sure that behavioral science has a name for this.) That growth rate during the1987-91 was very modest compared to the nominal growth rates in earlier fat years. Thus, the disparity between the two indices was much smaller than during the latter.

    At one extreme, if a) the nominal GDP growth rate is zero and is expected to remain so for the foreseeable future, b) the GDP share of Nikkei 225 after-tax profits is expected to remain constant for the foreseeable future, and c) interest rates also remain constant, then the NIKKEI 225 and NIKKEI 225/nominal GDP*50,000 should in principle track each other perfectly. Doesn’t this roughly approximate the post-bubble decades?

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