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Please use this identifier to cite or link to this item: http://hdl.handle.net/10023/655
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Title: Heterogeneous beliefs and instability
Authors: Lasselle, Laurence
Svizzero, Serge
Tisdell, Clem
Editors: University of St Andrews. School of Economics and Finance
Keywords: bounded rationality
chartists
chaos
fundamentalists
rational expectations
Issue Date: 2001
Citation: School of Economics and Finance discussion paper series ; 0111
Abstract: While Rational Expectations have dominated the paradigm of expectations formation, they have been more recently challenged on the empirical ground such as, for instance, in the dynamics of the exchange rate. This challenge has led to the introduction of heterogeneous expectations in economic modeling. More specifically, the forecasts of the market participants have been drawn from competing views. Two behaviours are usually considered: agents are either fundamentalist or chartist. Moreover, the possibility of switching from one behaviour to the other one is also assumed. In a simple cobweb model, we study the dynamics associated with different endogenous switching process based on the path of prices. We provide an example with an asymmetric endogenous switching process built on the dynamics of past prices. This example confirms the widespread belief that fundamentalist market behaviour as compared with that of chartist tends to promote market stability.
Version: Postprint
Description: Previously in the University eprints HAIRST pilot service at http://eprints.st-andrews.ac.uk/archive/00000057/
URI: http://ideas.repec.org/p/san/wpecon/0111.html
http://hdl.handle.net/10023/655
Type: Working or discussion paper
Publication Status: Not published
Status: Non peer reviewed
Publisher: School of Economics and Finance, University of St Andrews.
Appears in Collections:School of Economics and Finance Discussion Paper Series 2001



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