A cobweb model with alternating demand and supply functions
In this work I present a cobweb model for markets characterized by two couples of demand and supply functions which cyclically alternate with period two, in a succession of peak and off-peak market phases. Starting from classical adaptive expectations, a new expectation formation mechanism is presented, to take into account such marketsâ€™ peculiarity. In particular, to adapt the previous in-phase expected price, agents use both in-phase and out-of-phase expectation errors, suitably weighted through a phase weight. It is shown that the resulting model is described by a non-autonomous difference equation. The local asymptotic stability of the steady state equilibrium is studied, showing that it depends on the expectation weight, the phase weight and on both the relative slopes, at the equilibrium, of the supply functions with respect to the demand functions. Several crucial differences with respect to the classical cobweb model are highlighted, showing the potentially ambiguous role of expectation weight and of relative slopes. It is shown that destabilization can occur both through a flip and a Neimark-Sacker bifurcation, which can occur for the same market conditions and different expectation weights.
|Date of creation:||07 Feb 2016|
|Date of revision:||07 Feb 2016|
|Contact details of provider:|| Postal: Piazza Ateneo Nuovo, 1 Milano 20126|
Phone: +39 02 6448 3089
Fax: +39 02 6448 3085
Web page: http://dems.unimib.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dieci, Roberto & Westerhoff, Frank, 2010.
"Interacting cobweb markets,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 75(3), pages 461-481, September.
- Hommes, Cars H., 1991. "Adaptive learning and roads to chaos : The case of the cobweb," Economics Letters, Elsevier, vol. 36(2), pages 127-132, June.
- Marc Nerlove, 1958. "Adaptive Expectations and Cobweb Phenomena," The Quarterly Journal of Economics, Oxford University Press, vol. 72(2), pages 227-240.
- Nicholas Kaldor, 1934. "A Classificatory Note on the Determinateness of Equilibrium," Review of Economic Studies, Oxford University Press, vol. 1(2), pages 122-136.
- Chiarella, Carl, 1988. "The cobweb model: Its instability and the onset of chaos," Economic Modelling, Elsevier, vol. 5(4), pages 377-384, October.
- Lundberg, Liv & Jonson, Emma & Lindgren, Kristian & Bryngelsson, David & Verendel, Vilhelm, 2015. "A cobweb model of land-use competition between food and bioenergy crops," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 1-14.
- Holmes, James M. & Manning, Richard, 1988. "Memory and market stability : The case of the cobweb," Economics Letters, Elsevier, vol. 28(1), pages 1-7.
- Hommes,Cars, 2015. "Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems," Cambridge Books, Cambridge University Press, number 9781107564978, December.
- Hommes,Cars, 2013. "Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems," Cambridge Books, Cambridge University Press, number 9781107019294, December.
- J. A. Carlson, 1968. "An Invariably Stable Cobweb Model," Review of Economic Studies, Oxford University Press, vol. 35(3), pages 360-362.
- Mordecai Ezekiel, 1938. "The Cobweb Theorem," The Quarterly Journal of Economics, Oxford University Press, vol. 52(2), pages 255-280.
- R. Manning, 1971. "A Generalization of a Cobweb Theorem," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 123-125.
- Hommes, Cars H., 1994. "Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 315-335, August.
- Ahmad Naimzada & Gian Italo Bischi, 2007. "Mann Iterations with Power Means," Working Papers 106, University of Milano-Bicocca, Department of Economics, revised 2007. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:mib:wpaper:325. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matteo Pelagatti)
If references are entirely missing, you can add them using this form.