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Stability of Competitive Equilibria with Heterogeneous Beliefs and Learning

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Abstract

The paper studies a class of models in which agents' expectations influence the actual dynamics while the expectations themselves are the outcome of some learning processes. Situations of both homogeneous and heterogeneous beliefs are considered. In both cases agents update their expectations by general ah - and least-squares h-processes and the stability of the resulting dynamics in both cases is analysed. It is shown how the stability of the actual dynamics is affected by the heterogeneous expectations and different least-squares h-processes.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp37.pdf
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Bibliographic Info

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 37.

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Date of creation: 01 Mar 2000
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Handle: RePEc:uts:rpaper:37

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  1. James Bullard, 1991. "Learning equilibria," Working Papers 1991-004, Federal Reserve Bank of St. Louis.
  2. Chiarella, Carl, 1988. "The cobweb model: Its instability and the onset of chaos," Economic Modelling, Elsevier, vol. 5(4), pages 377-384, October.
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  4. Day, R. & Huang, W., 1988. "Bulls, Bears And Market Sheep," Papers m8822, Southern California - Department of Economics.
  5. 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.
  6. Xue-Zhong He & Carl Chiarella, 1999. "Heterogeneous Beliefs, Risk and Learning in a Simple Asset-Pricing Model," Computing in Economics and Finance 1999 223, Society for Computational Economics.
  7. repec:att:wimass:9706 is not listed on IDEAS
  8. Jean-Michel Grandmont, 1997. "Expectations Formation and Stability of Large Socioeconomic Systems," Working Papers 97-27, Centre de Recherche en Economie et Statistique.
  9. Franke, Reiner & Sethi, Rajiv, 1998. "Cautious trend-seeking and complex asset price dynamics," Research in Economics, Elsevier, vol. 52(1), pages 61-79, March.
  10. Barucci, Emilio & Bischi, Gian Italo & Gardini, Laura, 1999. "Endogenous Fluctuations in a Bounded Rationality Economy: Learning Non-perfect Foresight Equilibria," Journal of Economic Theory, Elsevier, vol. 87(1), pages 243-253, July.
  11. James Bullard & John Duffy, 1994. "Using genetic algorithms to model the evolution of heterogeneous beliefs," Working Papers 1994-028, Federal Reserve Bank of St. Louis.
  12. Lux, Thomas, 1998. "The socio-economic dynamics of speculative markets: interacting agents, chaos, and the fat tails of return distributions," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 143-165, January.
  13. Hommes, Cars H., 1991. "Adaptive learning and roads to chaos : The case of the cobweb," Economics Letters, Elsevier, vol. 36(2), pages 127-132, June.
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  15. Reiner Franke & Tim Nesemann, 1999. "Two destabilizing strategies may be jointly stabilizing," Journal of Economics, Springer, vol. 69(1), pages 1-18, February.
  16. Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier.
  17. Jeffrey A. Frankel, 1993. "On Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061546, December.
  18. 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.
  19. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  20. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  21. Balasko, Yves & Royer, Daniel, 1996. "Stability of Competitive Equilibrium with Respect to Recursive and Learning Processes," Journal of Economic Theory, Elsevier, vol. 68(2), pages 319-348, February.
  22. 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.
  23. Evans, George W & Ramey, Garey, 1992. "Expectation Calculation and Macroeconomic Dynamics," American Economic Review, American Economic Association, vol. 82(1), pages 207-24, March.
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Cited by:
  1. Vivaldo M. Mendes & Diana A. Mendes & José Sousa Ramos, 2008. "Symbolic Dynamics and Control in a Matching Labor Market Model," Working Papers Series 1 ercwp1308, ISCTE-IUL, Business Research Unit (BRU-IUL).
  2. Orlando Gomes, 2010. "Ordinary Least Squares Learning And Nonlinearities In Macroeconomics," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 52-84, 02.
  3. Brock, William A. & Hommes, Cars H. & Wagener, Florian O. O., 2005. "Evolutionary dynamics in markets with many trader types," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 7-42, February.
  4. Chiarella, Carl & He, Xue-Zhong & Hung, Hing & Zhu, Peiyuan, 2006. "An analysis of the cobweb model with boundedly rational heterogeneous producers," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 750-768, December.
  5. Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2001. "Evolutionary Dynamics in Financial Markets With Many Trader Types," CeNDEF Working Papers 01-01, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.

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