Time Orientation and Asset Prices

Journal of Monetary Economics, Vol. 49, No. 1, pp. 107-135, January 2002

Posted: 15 Sep 2010

See all articles by Per Krusell

Per Krusell

Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

Burhanettin Kuruscu

University of Toronto - Department of Economics

Anthony A. Smith

Yale University - Cowles Foundation

Date Written: 2002

Abstract

We analyze a general-equilibrium asset pricing model where a small subset of the consumers/investors have a short-run “urge to save”. That is, their attitude toward consumption in the long run is a standard one they do place zero weight on consumption far enough out in the future but their short-run effective rates of discount may be negative. Our model, which is an elaboration on the framework proposed by Faruk Gul and Wolfgang Pesendorfer, does not feature time inconsistencies. Thus, we view consumers as fully rational, but subject to specific “internal frictions” in the form of temptation and self-control problems. The model nests the Mehra-Prescott model and we use it as a way of interpreting the wealth and asset pricing data. Some aspects of these data, we argue, can possibly be better understood using our model than the standard one.

JEL Classification: E21, E43, E44

Suggested Citation

Krusell, Per L. and Kuruscu, Burhanettin and Smith, Anthony A., Time Orientation and Asset Prices (2002). Journal of Monetary Economics, Vol. 49, No. 1, pp. 107-135, January 2002. Available at SSRN: https://ssrn.com/abstract=519483

Per L. Krusell

Princeton University - Department of Economics ( email )

111 Fisher Hall
Princeton, NJ
United States
609-258-4003 (Phone)
609-258-6419 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 0 8 16 30 73 (Phone)
+46 0 8 16 41 77 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Burhanettin Kuruscu (Contact Author)

University of Toronto - Department of Economics ( email )

Toronto, Ontario M5S 3G8
Canada

HOME PAGE: http://https://sites.google.com/site/bkuruscu

Anthony A. Smith

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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