Distorted Beliefs and Asset Price Disconnect Puzzles
Speaker: Professor Bruce Preston
Affiliation: University of Melbourne
Location: Room S402, Social Science Building (#24), UQ St Lucia Campus
Abstract
Economic models used for policy analysis can neither account for observed large swings in asset prices given fundamentals nor explain the impact of asset price changes on the real economy. This paper derives a generalized no-arbitrage condition that prices assets under a general class of non-rational, “distorted” beliefs. This condition predicts equilibrium asset prices persistently deviate from the fundamentals rational expectations price. Income effects from distorted beliefs amplify and propagate the effects of economic disturbances and engender strong spill-over effects across asset, product and input markets. We show these effects matter for monetary policy.
About the presenters meeting
Prof Preston will be visiting the School of Economics on Friday 4th November. While here, he will be using Room 614, Level 6, Colin Clark Building. If you would like to meet with him, please contact Dr Andres Bellofatt.
About School Seminar Series
The School of Economics General Seminar Series is held on Fridays. These are in-person and presented by a range of guest researchers from around Australia and internationally.