Investment, speculation, and financial regulation

Viktor Tsyrennikov

No 627, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We study a production economy in which agents have heterogeneous beliefs. When wealth is distributed evenly belief diversity depresses investment because the negative impact of pessimists outweighs the positive impact of optimists. Wealth volatility, driven by speculation, depresses investment further. Through a series of numerical simulations we show that imposing 'leverage-like' financial constraints on agents limits wealth movements, boosts investment, and significantly improves welfare.

Date: 2015
New Economics Papers: this item is included in nep-dge
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