Wealth Dynamics in a Bond Economy with Heterogeneous Beliefs | Zendy

Cogley Timothy | Zendy; Sargent Thomas J. | Zendy; Tsyrennikov Viktor | Zendy

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Wealth Dynamics in a Bond Economy with Heterogeneous Beliefs

Author(s) -

Cogley Timothy,

Sargent Thomas J.,

Tsyrennikov Viktor

Publication year - 2014

Publication title -

the economic journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.683

H-Index - 160

eISSN - 1468-0297

pISSN - 0013-0133

DOI - 10.1111/ecoj.12041

Subject(s) - bond , debt , economics , endowment , asset (computer security) , arrow , bond market , financial market , distribution (mathematics) , limit (mathematics) , wealth distribution , microeconomics , dynamics (music) , financial economics , monetary economics , inequality , finance , law , computer science , mathematical analysis , physics , computer security , mathematics , political science , acoustics , programming language

Two types of agents have diverse beliefs about the law of motion for an exogenous endowment. One knows the true process, and the other learns about it via Bayes' theorem. Financial market structure affects the dynamics of the wealth distribution. 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. When the only traded asset is a risk‐free bond, the learning agent accumulates wealth, both agents survive and the more knowledgeable agent is driven to his debt limit.

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