Optimal policy in a model of endogenous fluctuations and assets

Assets are coupled to endogenous aggregate output fluctuations in a model of heterogeneous agents. Those agents wish to avoid reacting inadvertently to an unobservable noise process, but to do so must elicit reactions to that noise from each other. An abstract institution is modeled that optimizes this elicitation by strategically transmitting information about aggregates; I designate this feedback. Feedback is used by agents and so influences the characteristics of aggregate fluctuations. The optimal feedback policy minimizes asset rates of return, maximizes the persistence of aggregate output fluctuations, and causes the distribution of wealth to widen continually and without limit.