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Extrapolative Expectations and Market Stability

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  • Vega-Redondo, Fernando

Abstract

An auctioneer model of market adjustment is proposed which, unlike the standard formulation, has prices react to extrapolated (rather than prevailing) excess demands. If expectations are sufficiently sensitive to current rates of change, every regular market equilibrium is shown to be locally stable. The model can be regarded as providing an institutional interpretation to Newton-like methods of market adjustment that, as the Newton process itself, ensure stability of every regular zero of a vector field. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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  • Vega-Redondo, Fernando, 1989. "Extrapolative Expectations and Market Stability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 513-517, August.
    • Handle: RePEc:ier:iecrev:v:30:y:1989:i:3:p:513-17
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    Cited by:

    1. Sjur Didrik Flåm, 2002. "Convexity, Differential Equations, and Games," CESifo Working Paper Series 655, CESifo.
    2. Emilian DOBRESCU, 2020. "Self-fulfillment degree of economic expectations within an integrated space: The European Union case study," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-32, December.

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