Economic Fluctuations and Pseudo-Wealth

What can explain the large changes in aggregate demand that occur absence of any seemingly corresponding shock to underlying state variables economy? We show macroeconomic volatility arise from dispersions beliefs among agents. These give rise bets and other trades speculative assets. Such pseudo-wealth, wealth individuals believe they have on basis expectations returns these gambles. In aggregate, when there are enough opportunities for trade beliefs, this perceived may be dangerously untethered either market or real economy. Given increased dispersion naturally arises unprecedented shocks, theory pseudo-wealth provides new understandings both origins unanticipated fluctuations their magnitude, markedly different prevailing theories grounded common knowledge individuals. This paper explores empirical theoretical underpinnings links concept observed fluctuations, lays out a research agenda might help us better understand role circumstances which it is pronounced.