Dynamics of Beliefs and Learning Under aL Processes - The Homogeneous Case

Carl Chiarella and Xuezhong (Tony) He (tonyxhe@gmail.com)

No 53, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper studies a class of models in which agents' expectations influence the actual dynamics while the expectations themselves are the outcome of some learning process. Under the assumptions that agents have homogeneous expectations (or beliefs) and that they update their expectations by least-squares L- and general aL - processes, the dynamic of the resulting expectations and learning schemes are analyzed. It is shown how the dynamics of the system, including stability, instability and bifurcation, are affected by the learning processes. The cobweb model with a simple homogeneous expectation scheme is employed as an example to illustrate the stability results, the various types of bifurcations and the routes to complicated price dynamics.

Keywords: homogeneous beliefs; least-squares l-process; genera; al-process; stability; instability; bifurcation; cobweb model (search for similar items in EconPapers)
Pages: 29 pages
Date: 2001-06-01
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Citations: View citations in EconPapers (11)

Published as: Chiarella, C. and He, X., 2004, "Dynamics of Beliefs and Learning Under aL Processes - The Homogeneous Case", In: International Symposia in Economic Theory and Econometrics, 363-390 Emerald Insight.

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Chapter: Dynamics of Beliefs and Learning Under aL-Processes—The Homogeneous Case (2004)
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