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arXiv · 2603.16108

Short-horizon Duesenberry Equilibrium

Jaime Alberto Londoño
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Abstract

We develop a continuous-time general equilibrium framework for an infinite heterogeneous population whose household types are transported by a Brownian flow. Agents repeatedly solve short-horizon optimization problems over state-price-discounted consumption and wealth, which admit an endogenous relative-income criterion in equilibrium. For the resulting Radner-type equilibrium---a short-horizon Duesenberry equilibrium---we obtain a complete characterization and an existence theorem; market completeness and the absence of state-tame arbitrage emerge endogenously from market clearing. Finally, the equity premium puzzle is shifted to a question about the volatility of aggregate total wealth, while the risk-free rate puzzle admits a plausible resolution.

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Jaime Alberto Londoño. 2026-03-17. Short-horizon Duesenberry Equilibrium. https://arxiv.org/abs/2603.16108

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