Sergeyev, Dmitriy; Lian, Chen; Gorodnichenko, Yuriy - National Bureau of Economic Research - 2023
We study the psychological costs of financial constraints and their economic consequences. Using a representative … dynamic model of consumption and labor supply. We emphasize two key results. First, a psychology-based theory of poverty traps … of financial stress. On the other hand, naifs dis-save, fall into a poverty trap, and incur high welfare losses. Second …