Production Delay and Belief Distributions in a Continuous-Time Cobweb Model
33 Pages Posted: 21 Feb 2017
Date Written: February 17, 2017
This paper provides a unified analysis of the impacts of both production delay and agents' belief distributions on the aggregate price fluctuations in a general continuous-time cobweb model. We find that the time inconsistence between demand and supply due to production delay inherently generates overshooting effect in price. Large production delays give rise to price fluctuations, even with small intensity of choice. By allowing producers to update their beliefs based on an large belief set, we show that different belief distributions lead to different price dynamics, and in turn, stable (unstable) prices are typically associated with stationary (nonstationary) belief distributions.
Keywords: Cobweb model, heterogeneity, adaptiveness, production delay, belief distribution, stability, chaos
JEL Classification: C62, E32, Q11
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