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Divergence and convergence in Scarf cycle environments: experiments and predictability in the dynamics of general equilibrium systems

Gillen, Benjamin J. and Hirota, Masayoshi and Hsu, Ming and Plott, Charles R. and Rogers, Brian W. (2020) Divergence and convergence in Scarf cycle environments: experiments and predictability in the dynamics of general equilibrium systems. Economic Theory . ISSN 0938-2259. (In Press) https://resolver.caltech.edu/CaltechAUTHORS:20200507-080407632

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Abstract

Previous experimental work demonstrates the power of classical theories of economic dynamics to accurately characterize equilibration in multiple market systems. Building on the literature, this study examines the behavior of experimental continuous double auction markets in convergence-challenging environments identified by Scarf (Int Econ Rev 1:157–171, 1960) and Hirota (Int Econ Rev 22:461–467, 1981). The experiments provide insight into two important economic questions: (a) Do markets necessarily converge to a unique interior equilibrium? and (b) which model, among a set of classical specifications, most accurately characterizes observed price dynamics? We observe excess demand-driven prices spiraling outwardly away from the interior equilibrium prices as predicted by the theory of disequilibrium price dynamics. We estimate a structural model establishing that partial equilibrium dynamics characterize price changes even in an unstable general equilibrium environment. We observe linkages between excess demand in one market and price changes in another market, but the sign of expected price change in a market does not depend on the magnitude of excess demand in other markets unless disequilibrium is severe.


Item Type:Article
Related URLs:
URLURL TypeDescription
https://doi.org/10.1007/s00199-020-01265-1DOIArticle
https://resolver.caltech.edu/CaltechAUTHORS:20191018-100829516Related ItemWorking Paper
Additional Information:© 2020 Springer Nature Switzerland AG. Part of Springer Nature. Received 03 September 2019; Accepted 07 April 2020; Published 23 April 2020. The financial support of the John Templeton Foundation (Grant No. 58067) the Rising Tide Foundation, and the Caltech Laboratory for Experimental Economics and Political Science is gratefully acknowledged. Comments of Peter Bossaerts, Anjan Mukherji, and Bill Zame contributed significantly.
Funders:
Funding AgencyGrant Number
John Templeton Foundation58067
Rising Tide FoundationUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:General equilibrium; Stability; Experiments
Classification Code:JEL Classification: D50; C92; E3
Record Number:CaltechAUTHORS:20200507-080407632
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20200507-080407632
Official Citation:Gillen, B.J., Hirota, M., Hsu, M. et al. Divergence and convergence in Scarf cycle environments: experiments and predictability in the dynamics of general equilibrium systems. Econ Theory (2020). https://doi.org/10.1007/s00199-020-01265-1
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:103058
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:07 May 2020 19:12
Last Modified:07 May 2020 19:12

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