Inequity Aversion, Financial Markets, and Output Fluctuations
Drawing on recent advances in the study of reference dependent utility we model financial markets as a coordination game with multiple equilibria. Asset valuations may change endogenously through re-coordination which induces fluctuations in output. These fluctuations are shown to be quantitatively relevant and inefficient. (JEL: G12) Copyright (c) 2004 The European Economic Association.
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Volume (Year): 2 (2004)
Issue (Month): 2-3 (04/05)
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