Production delays and price dynamics

Cars Hommes, Kai Li, Florian Wagener

Research output: Contribution to journalArticlepeer-review

Abstract

This paper develops a unified analysis of the impacts of production delays on aggregate price fluctuations in a continuous-time cobweb-type model. We find that the time inconsistency between demand and supply due to production delays inherently generates an overshooting effect in prices. Large production delays give rise to price fluctuations, even with a low intensity of choice. We also provide results consistent with the rational route to randomness of Brock and Hommes (1997) in a continuous-time infinite-dimensional economy.
Original languageEnglish
Pages (from-to)341–362
Number of pages22
JournalJournal of Economic Behavior and Organization
Volume194
DOIs
Publication statusPublished - Feb 2022

Keywords

  • Cobweb model
  • Heterogeneity
  • Adaptiveness
  • Production delay
  • Stability
  • Chaos

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