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Stability and Cycles in a Cobweb Model with Heterogeneous Expectations

  • Laurence Lasselle

    ()

  • Serge Svizzero

    ()

  • Clem Tisdell

    ()

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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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0706.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200706.

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Date of creation: 15 Jan 2007
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Handle: RePEc:san:cdmawp:0706
Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
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Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
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  1. 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.
  2. Woodford, Michael, 2000. "An Interview With William A. Brock," Macroeconomic Dynamics, Cambridge University Press, vol. 4(01), pages 108-138, March.
  3. repec:cup:macdyn:v:4:y:2000:i:1:p:108-38 is not listed on IDEAS
  4. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  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. repec:att:wimass:9506 is not listed on IDEAS
  7. Carl Chiarella & Xue-Zhong He, 2001. "Asset Price and Wealth Dynamics Under Heterogeneous Expectations," Research Paper Series 56, Quantitative Finance Research Centre, University of Technology, Sydney.
  8. Reiner Franke & Tim Nesemann, 1999. "Two destabilizing strategies may be jointly stabilizing," Journal of Economics, Springer, vol. 69(1), pages 1-18, February.
  9. 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.
  10. 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.
  11. William A. Brock & Cars H. Hommes, 1995. "Rational Routes to Randomness," Working Papers 95-03-029, Santa Fe Institute.
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