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Earning inflation, real investment and self-fulfilling uncertainty

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  • Wang, Bo
  • Hu, Tiantian
  • Zheng, Suli

Abstract

We develop a model of informational interdependence between entrepreneurs and the real economy, linking economic uncertainty to entrepreneurs’ earning inflation. We show that information acquisition in the real economy discourages earning inflation. With a monopolistic competition structure, earning inflation could be self-fulling with two equilibria. In a dynamic setting, our model characterises self-fulfilling uncertainty traps with two steady-state equilibria transitional dynamics.

Suggested Citation

  • Wang, Bo & Hu, Tiantian & Zheng, Suli, 2023. "Earning inflation, real investment and self-fulfilling uncertainty," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008607
    DOI: 10.1016/j.frl.2023.104488
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    References listed on IDEAS

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    More about this item

    Keywords

    Earning inflation; Information acquisition; Business cycle;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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