Production Delay and Belief Distributions in a Continuous-Time Cobweb Model

33 Pages Posted: 21 Feb 2017

See all articles by Cars H. Hommes

Cars H. Hommes

University of Amsterdam - Amsterdam School of Economics (ASE); CeNDEF; Tinbergen Institute

Kai Li

Macquarie Business School, Macquarie University

Date Written: February 17, 2017

Abstract

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

Suggested Citation

Hommes, Cars H. and Li, Kai, Production Delay and Belief Distributions in a Continuous-Time Cobweb Model (February 17, 2017). Available at SSRN: https://ssrn.com/abstract=2919120 or http://dx.doi.org/10.2139/ssrn.2919120

Cars H. Hommes

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Center for Nonlinear Dynamics in Economics and Finance
1018 WB Amsterdam
Netherlands
+31 20 525 4246 (Phone)
+31 20 525 4349 (Fax)

CeNDEF ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

HOME PAGE: http://www1.fee.uva.nl/cendef/

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Kai Li (Contact Author)

Macquarie Business School, Macquarie University ( email )

Level 6 4 Eastern Road, Macquarie University
North Ryde NSW 2109
Sydney, NSW 99999
Australia
435473800 (Phone)

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