Investment Demand Beliefs and Involuntary Unemployment in a Stock Market Overlapping Generations Model ()
ABSTRACT
It is the aim of this paper to model involuntary unemployment in
Magill
and Quinzii's (2003) seminal stock market model with non-shiftable capital and
affine equity-price expectations. In contrast to
New-Keynesian macro-models, unemployment
is not traced back to inflexible prices and wage rates, but to inflexible aggregate investment based on investors'“beliefs”
(Farmer, 2020) about
investment demand. After setting up the stock market model, sufficient
conditions for the existence and dynamic stability
of a Golden Rule steady state with involuntary unemployment are
presented and the comparative dynamics of this steady state are investigated.
While an increase in investor optimism decreases unemployment in the short and
long run, a smaller savings rate does this only temporarily.
Share and Cite:
Farmer, K. (2023) Investment Demand Beliefs and Involuntary Unemployment in a Stock Market Overlapping Generations Model.
Theoretical Economics Letters,
13, 485-503. doi:
10.4236/tel.2023.133031.
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