Macroeconomic Dynamics



ARTICLES

STABILITY AND CYCLES IN A COBWEB MODEL WITH HETEROGENEOUS EXPECTATIONS


LAURENCE LASSELLE a1c1, SERGE SVIZZERO a2 and CLEM TISDELL a3
a1 University of St. Andrews
a2 University of La Réunion
a3 University of Queensland

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.


Key Words: Bounded rationality; Cobweb model; Flip bifurcation; Neimark–Sacker bifurcation.

Correspondence:
c1 Address correspondence to: Laurence Lasselle, School of Economics and Finance, St. Andrews, Fife, KY16 9AL, United Kingdom; e-mail: LL5@st-andrews.ac.uk.


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