Production Delays and Price Dynamics

37 Pages Posted: 24 Sep 2021

See all articles by Cars H. Hommes

Cars H. Hommes

Government of Canada - Bank of Canada; CeNDEF, Amsterdam School of Economics, University of Amsterdam; Tinbergen Institute

Kai Li

Macquarie Business School, Macquarie University

Florian Wagener

University of Amsterdam - Center for Nonlinear Dynamics in Economics and Finance (CeNDEF) - Department of Quantitative Economics; Tinbergen Institute

Date Written: September 23, 2021

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. In our model, investor beliefs (prices) are updated slowly (quickly), leading prices to build up slowly but crash suddenly. 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, stabil- ity, chaos

JEL Classification: C62, D84, E32

Suggested Citation

Hommes, Cars H. and Li, Kai and Wagener, Florian O.O., Production Delays and Price Dynamics (September 23, 2021). Available at SSRN: https://ssrn.com/abstract=3929240 or http://dx.doi.org/10.2139/ssrn.3929240

Cars H. Hommes

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

CeNDEF, Amsterdam School of Economics, University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

HOME PAGE: http://https://www.uva.nl/en/profile/h/o/c.h.hommes/c.h.hommes.html

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Kai Li (Contact Author)

Macquarie Business School, Macquarie University ( email )

Level 6 4 Eastern Road, Macquarie University
North Ryde NSW 2109
Sydney, NSW 99999
Australia
435473800 (Phone)

Florian O.O. Wagener

University of Amsterdam - Center for Nonlinear Dynamics in Economics and Finance (CeNDEF) - Department of Quantitative Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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