NBER Publications by William C. Brainard

Much of James Tobin's professional life has been devoted to studying the interrelationship between the goods and financial markets. His general equilibrium approaches stresses the interaction of the demand for financial assets with the decision to accumulate productive capital. His emphasis on q, the ratio of market value of assets to their replacement cost, has shaped how students of the aggregate economy understand the link between the stock market and fixed investment. This paper examines the empirical linkage between fundamental returns on physical corporate assets and market return on financial claims on those assets. It defines the fundamental return as real cash flow divided by replacement cost. It examines whether the market return on individual firms respond more to aggregate shoc...