Goutham Gopalakrishna , Seung Joo Lee , Theofanis Papamichalis
{"title":"Beliefs and the net worth trap","authors":"Goutham Gopalakrishna , Seung Joo Lee , Theofanis Papamichalis","doi":"10.1016/j.jet.2025.106033","DOIUrl":null,"url":null,"abstract":"<div><div>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.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"227 ","pages":"Article 106033"},"PeriodicalIF":1.4000,"publicationDate":"2025-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Economic Theory","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0022053125000791","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
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.
期刊介绍:
The Journal of Economic Theory publishes original research on economic theory and emphasizes the theoretical analysis of economic models, including the study of related mathematical techniques. JET is the leading journal in economic theory. It is also one of nine core journals in all of economics. Among these journals, the Journal of Economic Theory ranks fourth in impact-adjusted citations.