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A Theory of Asset Prices Based on Heterogeneous Information. (2016). Sachs, Dominik ; Werquin, Nicolas ; Tsyvinski, Aleh.
In: Cowles Foundation Discussion Papers.
RePEc:cwl:cwldpp:2051.

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  30. In this case, we show in the Appendix by directly inverting the matrix in (58) and letting ε2 → 0 that we obtain the following familiar result (see equation (2.6) in Kotlikoff and Summers (1987) and 54 Using the matrix equality (I − A) −1 = P∞ n=0 An (assuming that the norm of the matrix is smaller than 1), we can solve equation (58) to express dˆ l1, dˆ l2 as an infinite sum, the economic interpretation of which is the sequence of feedback effects on labor supply coming from the general equilibrium wage effects. This expression parallels (22) in Section 2 for the case of a continuum of labor inputs and general nonlinear tax reforms.
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