We propose a dynamic model of investment and trade subject to two main frictions. First,
outside capital to finance risky projects is limited. Second, a random group of agents will have
the opportunity to invest in new technology and these opportunities are not contractible. The
first friction implies the presence of investment cycles with abundant investment and low returns
in booms and little investment and high returns in recessions. Only when the second friction is
present investment cycles are constrained inefficient. Often the inefficiency is two-sided with too
much investment in booms and too little in recessions from a social point of view. Interventions
targeting only the underinvestment in recessions might make all agents worse off. Also, the two-
sided inefficiency typically implies too volatile prices and too frequent realizations of abnormally
low prices compared to fundamentals.