Capital Gains: Blue Machines and Red Machines *

  • Escola de Economia e Gestao Departmento de Economia

Abstract

Capital gains play an essential role in the intertemporal allocation of resources, but they can also fuel self-fulfilling bubbles. The simple case of 2 " identical " capitals is analyzed in an overlapping generations model. The only trajectory in which expectations are realized at every date is the one in which blue machines and red machines have the same… (More)

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