Production delays and price dynamics

Cars Hommes; Kai Li; Florian Wagener

doi:10.1016/j.jebo.2021.12.033

Production delays and price dynamics

Cars Hommes, Kai Li, Florian Wagener

Department of Applied Finance

Research output: Contribution to journal › Article › peer-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 language	English
Pages (from-to)	341–362
Number of pages	22
Journal	Journal of Economic Behavior and Organization
Volume	194
DOIs	https://doi.org/10.1016/j.jebo.2021.12.033
Publication status	Published - Feb 2022

Keywords

Cobweb model
Heterogeneity
Adaptiveness
Production delay
Stability
Chaos

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10.1016/j.jebo.2021.12.033

Cite this

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title = "Production delays and price dynamics",

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.",

keywords = "Cobweb model, Heterogeneity, Adaptiveness, Production delay, Stability, Chaos",

author = "Cars Hommes and Kai Li and Florian Wagener",

year = "2022",

month = feb,

doi = "10.1016/j.jebo.2021.12.033",

language = "English",

volume = "194",

pages = "341–362",

journal = "Journal of Economic Behavior and Organization",

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AU - Hommes, Cars

AU - Li, Kai

AU - Wagener, Florian

PY - 2022/2

Y1 - 2022/2

N2 - 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.

AB - 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.

KW - Cobweb model

KW - Heterogeneity

KW - Adaptiveness

KW - Production delay

KW - Stability

KW - Chaos

UR - http://purl.org/au-research/grants/arc/DE180100649

UR - http://www.scopus.com/inward/record.url?scp=85123215661&partnerID=8YFLogxK

U2 - 10.1016/j.jebo.2021.12.033

DO - 10.1016/j.jebo.2021.12.033

M3 - Article

VL - 194

SP - 341

EP - 362

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

ER -

Production delays and price dynamics

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Slow Diffusion of Information in Asset Pricing and Risk Management

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Production delays and price dynamics

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Slow Diffusion of Information in Asset Pricing and Risk Management

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