Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Heterogeneous Expectations and Transmission Mechanisms of Public Debt

Vol.26, No.2, June , 79–105


English Version |  Korean Version
  •   (Department of Economics, Seoul National University)

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Abstract  

In this paper, heterogeneous expectations of households about future economic growth take place because of different forecasts of future economic growth made by different public agencies. In an economy with only riskless real bonds, households with pessimistic beliefs tend to accumulate more wealth than those with correct beliefs about future economic growth. To the extent which the equilibrium interest rate rises with the outstanding amount of the public debt, this result implies that fiscal policy can have impact on the distribution of consumption and wealth of individual households. In particular, this distributional impact of fiscal policy depends on the structure of financial market when households are heterogeneous in their beliefs.


Keywords
   Heterogeneous Beliefs, Public Debt, Consumption and Wealth Inequalities

JEL classification codes
   E62, G12, H31
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