Journal article
Beliefs and the net worth trap
- Abstract:
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We develop a tractable framework to explore how beliefs about long-term economic growth shape macroeconomic and financial stability. By modeling belief distortions among productive capital users, we provide an analytical characterization of a novel phenomenon termed the “net worth trap”, wherein overly optimistic or pessimistic beliefs among productive agents prevent them from rebuilding wealth, causing permanent inefficiencies. A procyclical swing in beliefs reduces or exacerbates the instability, indicating that the type of belief when the economy is vulnerable has important consequences on financial stability and macroeconomic dynamics.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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- Files:
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(Preview, Version of record, pdf, 1.6MB, Terms of use)
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- Publisher copy:
- 10.1016/j.jet.2025.106033
Authors
- Publisher:
- Elsevier
- Journal:
- Journal of Economic Theory More from this journal
- Volume:
- 227
- Article number:
- 106033
- Publication date:
- 2025-05-26
- Acceptance date:
- 2025-05-17
- DOI:
- EISSN:
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1095-7235
- ISSN:
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0022-0531
- Language:
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English
- Keywords:
- Pubs id:
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2126906
- Local pid:
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pubs:2126906
- Deposit date:
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2025-05-29
- ARK identifier:
Terms of use
- Copyright holder:
- Gopalakrishna et al.
- Copyright date:
- 2025
- Rights statement:
- © 2025 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
- Licence:
- CC Attribution (CC BY)
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