Hysteresis and cyclical adjustment in the stock markets: the macroeconomic effects of technological progress

The aim of this paper is to investigate the effects of technological change on stock market dynamics. We develop an intertemporal optimising model, the central innovation of which is the distinction between the non-perishables and perishables sectors. We discuss the conditions likely to lead to cyclical stock market behaviour in response to technological shocks. Furthermore, we show that one-off technological advances may have persistent effects giving the country a permanent growth advantage. This gives an alternative mechanism for explaining differential growth rates to that already established in the endogenous growth literature.