During the stock market volatility of 1999 and 2000 much was made of whether certain economies were ‘new economy’ or ‘old economy’. ‘New economy’ countries were those that had a significant high-tech production sector, ‘old economy’ countries were the rest. In the hype surrounding the ‘new economy’ stock returns for high-tech firms soared.
Consequently, the stock markets of ‘new economy’ countries soared while ‘old economy’ stock markets delivered more pedestrian returns. It was generally assumed that stock market returns reflected the productivity of the broader economy and that high-tech production was delivering big productivity gains to certain countries while ‘old economy’ countries were largely being left behind. As the events since April 2000 demonstrate, however, equating stock market performance with real economy performance can be dangerous in the presence of an asset price bubble.