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STABILITY AND CYCLES IN A COBWEB MODEL WITH HETEROGENEOUS EXPECTATIONS

Published online by Cambridge University Press:  23 November 2005

LAURENCE LASSELLE ,
SERGE SVIZZERO  and
CLEM TISDELL
LAURENCE LASSELLE
Affiliation:
University of St. Andrews
SERGE SVIZZERO
Affiliation:
University of La Réunion
CLEM TISDELL
Affiliation:
University of Queensland
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Abstract

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.

Keywords

Bounded rationalityCobweb modelFlip bifurcationNeimark–Sacker bifurcation
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 9 , Issue 5 , November 2005 , pp. 630 - 650
Copyright
© 2005 Cambridge University Press

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