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Inattention, wealth inequality and equilibrium asset prices

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  • Finocchiaro, Daria

Abstract

Heterogeneity in planning propensity affects wealth inequality and asset prices. This paper presents an economy where attentive agents plan their consumption period by period, while inattentive agents plan every other period. Inattentive consumers face more uncertainty and trade at unfavorable prices. If the only source of uncertainty is future income, inattentive consumers accumulate more wealth. In contrast, with uncertain asset returns inattentive investors accumulate less wealth. Asset prices must induce attentive consumers to voluntarily bear the burden of adjusting to aggregate shocks and, as a result, are much more volatile than in a representative agent model with full attention.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 2 (March)
Pages: 146-155

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Handle: RePEc:eee:moneco:v:58:y:2011:i:2:p:146-155

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Web page: http://www.elsevier.com/locate/inca/505566

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Cited by:
  1. Gust, Christopher & López-Salido, David, 2014. "Monetary policy and the cyclicality of risk," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 59-75.

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