Wealth Dynamics in a Bond Economy with Heterogeneous Beliefs

Dados Bibliográficos

ID9718522
AutoresTimothy Cogley (New York University), Thomas J Sargent (0000-0002-5457-0944, New York University, and Hoover Institution), Viktor Tsyrennikov (Cornell University)
Ano2014
Volume124
Fascículo575
Páginas1-30
Data de publicação2014-03-01
Peer ReviewedSim
Open AccessSim
TipoARTICLE
PeriódicoThe Economic Journal (JOURNAL)
Identificadores do periódicoISSN: 0013-0133 • E-ISSN: 1468-0297
EditoraOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12041
OpenAlexW2234773852
IdiomaEN
Citações recebidas4
Referências citadas18

We study an economy in which two types of agents have diverse beliefs about the law of motion for an exogenous endowment. One type knows the true law of motion, and the other learns about it via Bayes's theorem. Financial markets are incomplete, the only traded asset being a risk-free bond. Borrowing limits are imposed to ensure the existence of an equilibrium. We analyze how financial-market structure affects the distribution of financial wealth and survival of the two agents. When markets are complete, the learning agent loses wealth during the learning transition and eventually exits the economy (Blume and Easley 2006). In contrast, in a bond-only economy, the learning agent accumulates wealth, and both agents survive asymptotically, with the knowledgeable agent being driven to his debt limit. The absence of markets for certain Arrow securities is central to reversing the direction in which wealth is transferred

Arrow · Asset (computer security · Bond · Bond market · Debt · Distribution (mathematics · Dynamics (music · Economics · Endowment · Financial economics · Financial market · Inequality · Limit (mathematics · Microeconomics · Monetary economics · Wealth distribution · Complex Systems and Time Series Analysis · Computer Science · Economic theories and models · Finance · Financial Markets and Investment Strategies · Law