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On controlling chaos in a discrete†time Walrasian tâtonnement process

Ahmad Naimzada and Serena Sordi

Metroeconomica, 2018, vol. 69, issue 1, 178-194

Abstract: The simple pure exchange model with two individuals and two goods introduced by Day and Pianigiani in 1991, later extensively analyzed by Day and taken up again by Mukherji, is discussed and extended with the purpose of showing that chaos in a discrete tâtonnement process of this kind can be controlled if the auctioneer uses a smooth, non†linear formulation of the price evolution process such that the price adjustment is a sigmoid†shaped function of the excess demand, with given lower and upper limits. In particular, we show that, given the price adjustment speed and the excess demand function, the auctioneer can (a) stabilize the dynamics, (b) reduce the complexity of the attractor and (c) increase the economic significance of the adjustment process by simply acting on the lower and/or upper limits that constrain price dynamics.

Date: 2018
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Handle: RePEc:bla:metroe:v:69:y:2018:i:1:p:178-194