Wealth Dynamics in a Bond Economy with Heterogeneous Beliefs

Timothy Cogley (), Thomas Sargent and Viktor Tsyrennikov
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Timothy Cogley: New York University

No 2013-23, Working Papers from Economic Research Institute, Bank of Korea

Abstract: 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' theorem. Financial market structure affects the dynamics of the distribution of financial wealth. When markets are complete, the learning agent loses wealth, as in Blume and Easley (2006). The absence of markets for some Arrow securities alters the direction in which wealth is transferred relative to a complete markets economy. In an economy in which only a risk-free bond is traded, the learning agent accumulates wealth, both agents survive asymptotically, and the more knowledgeable agent is driven to his debt limit.

Keywords: Wealth dynamics; survival; incomplete markets; diverse beliefs; learning (search for similar items in EconPapers)
JEL-codes: D52 D53 D83 D84 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-11-20
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Citations: View citations in EconPapers (9)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2013-23.pdf Working Paper, 2013 (application/pdf)

Related works:
Journal Article: Wealth Dynamics in a Bond Economy with Heterogeneous Beliefs (2014)
Working Paper: Wealth Dynamics in a Bond Economy with Heterogeneous Beliefs (2012)
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