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Heterogeneous Expectations, Dynamics, and Stability of Markets

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Author Info
Lasselle, Laurence (University of St Andrews)
Serge Svizzero
Clem Tisdell

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Abstract

This paper examines the role of heterogeneous beliefs in a cobweb model. We proceed in two stages. First, two groups of agents are distinguished. They are either fundamentalists, or chartists. The latter specify the expected price from an adaptive process, the former have a "rational behaviour". Second, agents may choose between rational expectations and an adaptive process. We demonstrate twofold. The market behaviour of fundamentalists compared to chartists promotes market stability. Market stability may emerge depending on the specification of the expectations and the intensity of switching between the two behaviours.

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Publisher Info
Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 130.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:130

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Related research
Keywords: cobweb model; switching behaviour; Flip bifurcation; Neimark-Sacker bifurcation; resonance;

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Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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  1. Laurence LASSELLE & Serge SVIZZERO & Clem TISDELL, 2004. "Stability and Cycles in a Cobweb Model with Heterogeneous Expectations," Economics Working Papers ECO2004/03, European University Institute. [Downloadable!]
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This page was last updated on 2009-11-25.

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