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Cobweb theorems with production lags and price forecasting

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  • Dufresne, Daniel
  • Vázquez-Abad, Felisa
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    Abstract

    The classical cobweb theorem is extended to include production lags and price forecasts. Price forecasting based on a longer period has a stabilizing effect on prices. Longer production lags do not necessarily lead to unstable prices; very long lags lead to cycles of constant amplitude. The classical cobweb requires elasticity of demand to be greater than that of supply; this is not necessarily the case in a more general setting, price forecasting has a stabilizing effect. Random shocks are also considered. --

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2012-17.

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    Date of creation: 2012
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    Handle: RePEc:zbw:ifwedp:201217

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    Keywords: Cobweb theorem; production lags; stable markets; price fluctuations;

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    1. NG, Serena & RUGE-MURCIA, Francisco J., 1997. "Explaining the Persistence of Commodity Prices," Cahiers de recherche 9709, Universite de Montreal, Departement de sciences economiques.
    2. Bougerol, Philippe & Picard, Nico, 1992. "Stationarity of Garch processes and of some nonnegative time series," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 115-127.
    3. Karla Atkins & Achla Marathe & Chris Barrett, 2007. "A computational approach to modeling commodity markets," Computational Economics, Society for Computational Economics, vol. 30(2), pages 125-142, September.
    4. 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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