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Stability And Cycles In A Cobweb Model With Heterogeneous Expectations

  • LASSELLE, LAURENCE
  • SVIZZERO, SERGE
  • TISDELL, CLEM

We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 9 (2005)
Issue (Month): 05 (November)
Pages: 630-650

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Handle: RePEc:cup:macdyn:v:9:y:2005:i:05:p:630-650_05
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  1. Goeree, Jacob K. & Hommes, Cars H., 2000. "Heterogeneous beliefs and the non-linear cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 761-798, June.
  2. Xue-Zhong (Tony) He & Carl Chiarella, 2001. "Asset Price and Wealth Dynamics under Heterogeneous Expectations," CeNDEF Workshop Papers, January 2001 5A.2, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  3. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  4. William A. Brock & Cars H. Hommes, 1995. "Rational Routes to Randomness," Working Papers 95-03-029, Santa Fe Institute.
  5. Branch, William A., 2002. "Local convergence properties of a cobweb model with rationally heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 63-85, November.
  6. Hommes, C.H., 1999. "Cobweb Dynamics under Bounded Rationality," CeNDEF Working Papers 99-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  7. Reiner Franke & Tim Nesemann, 1999. "Two destabilizing strategies may be jointly stabilizing," Journal of Economics, Springer, vol. 69(1), pages 1-18, February.
  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.
  9. repec:cup:macdyn:v:4:y:2000:i:1:p:108-38 is not listed on IDEAS
  10. Woodford, Michael, 2000. "An Interview With William A. Brock," Macroeconomic Dynamics, Cambridge University Press, vol. 4(01), pages 108-138, March.
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