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Expectations and Stability with Gross Complements

In: Trade Policies for Development and Transition

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  • DAVID G. TARR

Abstract

Arrow and Nerlove (1958) have found that when all commodities, both present and future, in a continuous time general equilibrium model of a competitive economy, are gross substitutes, then stability with “static” expectations is equivalent to stability with “adaptive” expectations. It is found here that we may extend the Arrow-Nerlove result that the stability behaviour of the system is unaffected by the selection of the more sophisticated adaptive expectations over static expectations, provided the substitute-complement relationship of commodities, both present and future, fits into the Morishima (1952) matrix pattern. In addition, a counterexample is exhibited which establishes that the Arrow-Nerlove result does not hold in general and the choice of adaptive versus static expectations can affect stability…

Suggested Citation

  • David G. Tarr, 2017. "Expectations and Stability with Gross Complements," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 28, pages 631-634, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813108448_0028
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    Keywords

    International Trade Policy; Developing Countries; Transition Countries; Growth; Poverty; Environment; Multilateral; Adjustment Costs; Autos and Steel;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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