Past expectations as a determinant of equilibrium prices

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Past expectations as a determinant of equilibrium prices - hysteresis in a simple economy

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Sofia Castro () (Faculdade de Economia, Universidade do Porto)
João Correia-da-Silva () (Faculdade de Economia, Universidade do Porto)

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Joao Correia-da-Silva

Abstract

We give an illustration of hysteresis (path-dependence) in a simple economy. In the presence of multiple possible equilibrium prices, we find that past expectations determine present prices. This phenomenon of path-dependence is robust under perturbations of the economy.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 185.

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Length: 8 pages
Date of creation: Jul 2005
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Handle: RePEc:por:fepwps:185

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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
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-08-13 (All new papers)

References listed on IDEAS
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Gocke, Matthias, 2002. " Various Concepts of Hysteresis Applied in Economics," Journal of Economic Surveys, Blackwell Publishing, vol. 16(2), pages 167-88, April. [Downloadable!] (restricted)
Dixit, Avinash, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-32, Winter. [Downloadable!] (restricted)
Ljungqvist, Lars, 1994. "Hysteresis in international trade: a general equilibrium analysis," Journal of International Money and Finance, Elsevier, vol. 13(4), pages 387-399, August. [Downloadable!] (restricted)

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