Time Orientation and Asset Prices

We analuze a general-equilibrium asset pricing model where a small subset of the consumers/investors have a short-run "urge to save." That is, their attitudetoward consumption in the long run is a standard one--they do place zero weight on consumption far enough out in the future--but their short-run effective rates of discount may be negative. Our model, which is an elaboration on the framework proposed by Faruk Gul and Wolfgang Pesendorger, does not feature time inconsistencies. Thus, we view consumers as fully rational, but subject to specific "internal frictions" in the form of temptation. The model nests the Mehra-Prescott model and we use it as a way of interpreting the wealth and asset pricing data. Some aspects of these data, we argue, can possibly be better understood using our model than the standard one.