Journal article
COMPLEX DYNAMICS IN LUCAS’ TREE ASSET PRICING MODEL WITH DYNAMIC SELF-CONTROL PREFERENCES
Macroeconomic dynamics, v 25(7), pp 1755-1778
Oct 2021
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This paper studies the global equilibrium dynamics implied by a Lucas’ tree asset pricing model where the representative agent is subject to temptation in consumption choices, and displays dynamic self-control preferences, as defined by Gul and Pesendorfer [(2004) Econometrica 72, 119–158.]. It shows that endogenous cycles of period 2 and higher, as well as chaotic dynamics exist provided temptation utility is sufficiently important (with respect to standard commitment utility) and sufficiently convex. For parameterizations leading to complex deterministic dynamics, a stochastic version of the model admits rational expectations equilibria displaying excess volatility with respect to the underlying fundamentals.
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Details
- Title
- COMPLEX DYNAMICS IN LUCAS’ TREE ASSET PRICING MODEL WITH DYNAMIC SELF-CONTROL PREFERENCES
- Creators
- Marco Airaudo - Drexel University
- Publication Details
- Macroeconomic dynamics, v 25(7), pp 1755-1778
- Publisher
- Cambridge University Press
- Number of pages
- 24
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000721298600007
- Scopus ID
- 2-s2.0-85118823888
- Other Identifier
- 991019168537004721
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- Web of Science research areas
- Economics