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Chaotic dynamics in an overlapping generations model with myopic and adaptive expectations

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  • Chen, Hung-Ju
  • Li, Ming-Chia
  • Lin, Yung-Ju

Abstract

In this paper, we study dynamic behavior of an overlapping generations model under three different expectations: perfect foresight, myopic expectations and adaptive expectations. We show that economic transition under myopic or adaptive expectations is very different from that under perfect foresight. When agents are perfectly foresighted, dynamics is simple, with a unique steady state that is globally attracting. However, cycles and chaotic motion can appear under myopic and adaptive expectations. We study the possibility of Li-Yorke chaos under myopic expectations and entropic chaos under adaptive expectations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 67 (2008)
Issue (Month): 1 (July)
Pages: 48-56

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Handle: RePEc:eee:jeborg:v:67:y:2008:i:1:p:48-56

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  10. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
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Cited by:
  1. Fanti, Luciano & Gori, Luca, 2010. "Complex equilibrium dynamics in a simple OLG model of neoclassical growth with endogenous retirement age and public pensions," MPRA Paper 23694, University Library of Munich, Germany.
  2. Richard Evans & Kerk Phillips, 2014. "OLG Life Cycle Model Transition Paths: Alternate Model Forecast Method," Computational Economics, Society for Computational Economics, vol. 43(1), pages 105-131, January.
  3. Fanti, Luciano & Gori, Luca, 2010. "Public health spending, old-age productivity and economic growth: chaotic cycles under perfect foresight," MPRA Paper 21335, University Library of Munich, Germany.
  4. Luciano Fanti & Luca Gori, 2013. "Fertility-related pensions and cyclical instability," Journal of Population Economics, Springer, vol. 26(3), pages 1209-1232, July.
  5. Gomes, Orlando, 2012. "Information stickiness in general equilibrium and endogenous cycles," Economics Discussion Papers 2012-46, Kiel Institute for the World Economy.
  6. Luciano Fanti & Luca Gori, 2012. "Public Expenditure on Health and Private Old-Age Insurance in an OLG Growth Model with Endogenous Fertility: Chaotic Dynamics Under Perfect Foresight," Computational Economics, Society for Computational Economics, vol. 40(4), pages 333-353, December.

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