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Chaotic Asset Price Dynamics with Technology Choice and Imperfect Observation

Author

Listed:
  • Jing Zhang

    (Okayama University)

  • Takao Asano

    (Okayama University)

  • Akihisa Shibata

    (Osaka University of Economics)

  • Masanori Yokoo

    (Okayama University)

Abstract

Asset price volatility, characterized by episodic booms and busts, is a prominent feature of real economies. To explain these phenomena, most existing literature has relied on bounded rationality or exogenous shocks. This paper studies land price dynamics within a rational agent general equilibrium model that incorporates endogenous technology choice. Entrepreneurs choose between a Leontief technology and a linear technology so as to maximize firm value, based on their relative productivity, but they can only observe the current land price with some noise. This informational friction results in probabilistic mixing of technology choices, leading to a continuous nonlinear land pricing map. We demonstrate that, under parameter restrictions that yield the Markov property, the resulting map exhibits observable chaos, and its invariant densities can be characterized analytically.

Suggested Citation

  • Jing Zhang & Takao Asano & Akihisa Shibata & Masanori Yokoo, 2026. "Chaotic Asset Price Dynamics with Technology Choice and Imperfect Observation," KIER Working Papers 1128, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:1128
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    References listed on IDEAS

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    1. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism and Macroeconomic Volatility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1359-1397.
    2. Umezuki, Yosuke & Yokoo, Masanori, 2019. "A simple model of growth cycles with technology choice," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 164-175.
    3. Kiminori Matsuyama & Iryna Sushko & Laura Gardini, 2018. "A piecewise linear model of credit traps and credit cycles: a complete characterization," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 119-143, November.
    4. William A. Brock & Cars H. Hommes, 2001. "A Rational Route to Randomness," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 16, pages 402-438, Edward Elgar Publishing.
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    Keywords

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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