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A behavioral cobweb model with heterogeneous speculators

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Author Info
Cristian Wieland
Frank Westerhoff

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Abstract

This paper aims at integrating heterogeneous boundedly rational speculators into the classical cobweb framework in which the producers have naive expectations. The net supply available to consumers thus depends on the positions of the speculators who switch between technical and fundamental forecast rules to predict prices. Our nonlinear, yet quite simple model has the potential to produce price dynamics which mimics the well-known cyclical price fluctuations of commodity markets. We show that if the number of speculators increases we first observe a pitchfork bifurcation and then a period doubling bifurcation. After infinitely many period doubling bifurcations the dynamics becomes chaotic

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 171.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:171

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Related research
Keywords: cobweb theory; heterogeneous speculators; price dynamics; commodity markets; bifurcation;

Find related papers by JEL classification:
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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  1. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August. [Downloadable!] (restricted)
  2. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  3. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 299-329, December. [Downloadable!] (restricted)
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  4. Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
  5. Cars H. Hommes, 2001. "Financial Markets as Nonlinear Adaptive Evolutionary Systems," Tinbergen Institute Discussion Papers 01-014/1, Tinbergen Institute. [Downloadable!]
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  6. Canoles, W. Bruce & Thompson, Sarahelen R. & Irwin, Scott H. & France, Virginia G., 1997. "An Analysis Of The Profiles And Motivations Of Habitual Commodity Speculators," ACE OFOR Reports 14768, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics. [Downloadable!]
    Other versions:
  7. Eduardo Borensztein & Mohsin S. Khan & Peter Wickham & Carmen Reinhart, 1994. "The Behavior of Non-Oil Commodity Prices," IMF Occasional Papers 112, International Monetary Fund.
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  8. Hommes, Cars H., 1998. "On the consistency of backward-looking expectations: The case of the cobweb," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 333-362, January. [Downloadable!] (restricted)
  9. Cashin, Paul & McDermott, C. John & Scott, Alasdair, 2002. "Booms and slumps in world commodity prices," Journal of Development Economics, Elsevier, vol. 69(1), pages 277-296, October. [Downloadable!] (restricted)
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  10. Hommes, Cars H., 1994. "Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 315-335, August. [Downloadable!] (restricted)
  11. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer. [Downloadable!] (restricted)
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