Expectations and Stability with Gross Complements

David Tarr

Chapter 28 in Trade Policies for Development and Transition, 2017, pp 631-634 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Arrow and Nerlove (1958) have found that when all commodities, both present and future, in a continuous time general equilibrium model of a competitive economy, are gross substitutes, then stability with “static” expectations is equivalent to stability with “adaptive” expectations. It is found here that we may extend the Arrow-Nerlove result that the stability behaviour of the system is unaffected by the selection of the more sophisticated adaptive expectations over static expectations, provided the substitute-complement relationship of commodities, both present and future, fits into the Morishima (1952) matrix pattern. In addition, a counterexample is exhibited which establishes that the Arrow-Nerlove result does not hold in general and the choice of adaptive versus static expectations can affect stability…

Keywords: International Trade Policy; Developing Countries; Transition Countries; Growth; Poverty; Environment; Multilateral; Adjustment Costs; Autos and Steel (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2017
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Journal Article: Expectations and Stability with Gross Complements (1978)
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