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Difference or Ratio: Implication of Status Preference on Stagnation

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  • Yoshiyasu Ono
  • Katsunori Yamada

Abstract

We consider a dynamic macroeconomic model of households that regard relative affluence as social status. The measure of relative affluence can be the ratio to, or the difference from, the social average. The two specifications lead to quite different equilibrium consequences: under the ratio specification full employment is necessarily realized, whereas under the difference specification there is a case where a persistent shortage of aggregate demand arises. Furthermore, using data of an affluence comparison experiment we empirically find that the difference specification fits the data better than the ratio specification. Therefore, affluence comparison can be a cause of persistent stagnation.

Suggested Citation

  • Yoshiyasu Ono & Katsunori Yamada, 2012. "Difference or Ratio: Implication of Status Preference on Stagnation," ISER Discussion Paper 0856rr, Institute of Social and Economic Research, Osaka University, revised Jan 2014.
    • Handle: RePEc:dpr:wpaper:0856rr
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    Cited by:

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    2. He Nie & Jordan Roulleau-Pasdeloup, 2023. "The promises (and perils) of control-contingent forward guidance," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 77-98, July.
    3. Pablo Cuba-Borda & Sanjay R. Singh, 2022. "Understanding Persistent ZLB: Theory and Assessment," Working Papers 346, University of California, Davis, Department of Economics.
    4. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204rr, Institute of Social and Economic Research, Osaka University, revised Sep 2023.
    5. Pascal Michaillat & Emmanuel Saez, 2015. "The Optimal Use of Government Purchases for Stabilization," NBER Working Papers 21322, National Bureau of Economic Research, Inc.
    6. Ikefuji, Masako & Ono, Yoshiyasu, 2021. "Environmental policies in a stagnant economy," Economic Modelling, Elsevier, vol. 102(C).
    7. Qichun He & Yulei Luo & Jun Nie & Heng-fu Zou, 2023. "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 346-372, January.
    8. Pascal Michaillat & Emmanuel Saez, 2022. "An economical business-cycle model [Breaking through the zero lower bound]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 382-411.
    9. Xu, Shaojun, 2023. "Behavioral asset pricing under expected feedback mode," International Review of Financial Analysis, Elsevier, vol. 86(C).
    10. Pascal Michaillat & Emmanuel Saez, 2021. "Resolving New Keynesian Anomalies with Wealth in the Utility Function," The Review of Economics and Statistics, MIT Press, vol. 103(2), pages 197-215, May.
    11. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204, Institute of Social and Economic Research, Osaka University.
    12. Murota, Ryu-ichiro, 2019. "Negative interest rate policy in a permanent liquidity trap," MPRA Paper 93498, University Library of Munich, Germany.
    13. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).
    14. Pablo A. Cuba-Borda & Sanjay R. Singh, 2019. "Understanding Persistent Stagnation," International Finance Discussion Papers 1243, Board of Governors of the Federal Reserve System (U.S.).
    15. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204r, Institute of Social and Economic Research, Osaka University, revised Jul 2023.
    16. Murota, Ryu-ichiro, 2022. "The effect of a decline in the world real interest rate on a small open economy experiencing persistent stagnation," Economics Letters, Elsevier, vol. 216(C).
    17. Qichun He & Yulei Luo & Jun Nie & Heng-fu Zou, 2023. "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 346-372, January.
    18. Hashimoto, Ken-ichi & Ono, Yoshiyasu, 2020. "A simple aggregate demand analysis with dynamic optimization in a small open economy," Economic Modelling, Elsevier, vol. 91(C), pages 89-99.
    19. Kazuma Inagakli, & Yoshiyasu Ono & Takayuki Tsuruga, 2022. "Accounting for the slowdown in output growth after the Great Recession: A wealth preference approach," ISER Discussion Paper 1174r, Institute of Social and Economic Research, Osaka University, revised Mar 2023.

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