Comment on “Growth cycles and market crashes”

Boldrin and Levine develop a model in which the unexpected obsolescence of product assets leads to a drop in the market value of existing capital. Their quantitative analysis shows that in a realistic range of parameter values, it is possible to generate falls in the stock market on the order of 10%-20%. These numbers are, however, not correct. Once a mistake in the computations of the paper is rectified, the model is capable of generating falls in the stock market on the order of 25%-50% for reasonable parameterizations.