2004 | OriginalPaper | Chapter
Speculative trade, asset prices and investment levels
Author : Alvaro Sandroni
Published in: Assets, Beliefs, and Equilibria in Economic Dynamics
Publisher: Springer Berlin Heidelberg
Included in: Professional Book Archive
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In this paper I consider a dynamically complete market model without intrinsic uncertainty. Agents’ beliefs are different, but correct in the limit. Some agents are more patient than others. I show that infinitely often share prices are low and the economy stagnates. Also, infinitely often share prices are high and the economy grows. The changes from growth to stagnation and from stagnation to growth are not caused by exogenous shocks. They are caused by speculative trade among agents with different propensities to save and invest.