Stability and cycles in a cobweb model with heterogeneous expectations

Laurence Lasselle, S Svizzero, C Tisdell

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16 Citations (Scopus)
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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.

Original languageEnglish
Pages (from-to)630-650
Number of pages21
JournalMacroeconomic Dynamics
Volume9
Issue number5
DOIs
Publication statusPublished - Nov 2005

Keywords

  • Bounded rationality
  • Cobweb model
  • Flip bifurcation
  • Neimark-Sacker bifurcation

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