Time Orientation and Asset Prices
Journal of Monetary Economics, Vol. 49, No. 1, pp. 107-135, January 2002
Posted: 15 Sep 2010
Date Written: 2002
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: Suggested Citation