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Adaptive expectations and cobweb phenomena: does heterogeneity matter?

Author

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  • Domenico Colucci

    () (Università degli Studi di Firenze [Firenze] - Università degli studi di Firenze)

  • Vincenzo Valori

    () (Università degli Studi di Firenze [Firenze] - Università degli studi di Firenze)

Abstract

This paper studies a cobweb-type commodity market characterised by a strictly monotone demand and supply, in which (n) types of firms operate. Types differ in a key parameter governing price expectations which are supposed to be adaptive. The unique steady state of the resulting economic dynamics is characterized in terms of stability and the impact of the number of firms types is studied: to this end the notions of structural and behavioural degree of instability, which are introduced in the paper, prove to be crucial in determining whether stability or instability prevail. The case of market integration is also considered and conditions to have stability (or instability) in terms of the original markets' parameters are given. The baseline structure is extended in two directions. The first extension assumes the point of view of an authority who is uncertain about the firms types. In this case the structural degree of instability determines how heterogeneity affects the probability of ending up with a stable outcome. The second extension consists in endogenizing the choice of predictors through a discrete choice based evolutionary mechanism. In both cases the amount of the heterogeneity and its possible variations play a critical role in shaping the range of possible long-run outcomes of the model.

Suggested Citation

  • Domenico Colucci & Vincenzo Valori, 2011. "Adaptive expectations and cobweb phenomena: does heterogeneity matter?," Post-Print hal-00828981, HAL.
  • Handle: RePEc:hal:journl:hal-00828981
    DOI: 10.1016/j.jedc.2011.03.008
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00828981
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Domenico Colucci & Vincenzo Valori, 2012. "Bounded rationality and parameters’ uncertainty in a simple monetary policy model," Working Papers - Mathematical Economics 2012-03, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    2. Colucci, Domenico & Valori, Vincenzo, 2015. "Stabilizing inflation in a simple monetary policy model with heterogeneous agents," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 108(C), pages 233-244.
    3. Ng, Desmond & Chen, Liming, 2016. "Learning to Learn: A Case for the Heterogeneous Expectations Hypothesis in Industrialized Markets," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 7(3).
    4. repec:bla:sysdyn:v:32:y:2016:i:3-4:p:279-308 is not listed on IDEAS
    5. Domenico Colucci & Vincenzo Valori, 2011. "Can Endogenous Participation Explain Price Volatility? Evidence from an Agent-Based Cobweb Model," Computational Economics, Springer;Society for Computational Economics, vol. 38(3), pages 425-437, October.
    6. Fu, Min & Xia, Jun & Fan, Xinghua & Tian, Lixin & Wang, Minggang, 2015. "New non-equilibrium cobweb dynamical evolution model and its application," Economic Modelling, Elsevier, vol. 51(C), pages 544-550.

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