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Pseudo-wealth and Consumption Fluctuations / Martin Guzman, Joseph E. Stiglitz.
- Format:
- Book
- Author/Creator:
- Guzman, Martin.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22838.
- NBER working paper series no. w22838
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- This paper provides an explanation for situations in which the state variables describing the economy do not change, but aggregate consumption experiences significant changes. We present a theory of pseudo-wealth--individuals' perceived wealth that is derived from heterogeneous beliefs and expectations of gains in a bet. This wealth is divorced from real assets that may exist in society. The creation of a market for bets will imply positive pseudo-wealth. Changes in the differences of prior beliefs will lead to changes in expected wealth and hence to changes in consumption, implying ex-post intertemporal individual and aggregate consumption misallocations and instabilities. Thus, in the environment we describe, completing markets increases macroeconomic volatility, raising unsettling welfare questions.
- Notes:
- Print version record
- November 2016.
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