Let it be: chaotic price instability can be beneficial

✍ Scribed by Akio Matsumoto

• Book ID: 104363321
• Publisher: Elsevier Science
• Year: 2003
• Tongue: English
• Weight: 358 KB
• Volume: 18
• Category: Article
• ISSN: 0960-0779
• DOI: 10.1016/s0960-0779(03)00005-5

✦ Synopsis

This study investigates an economic implication of chaotic fluctuations generated by a discrete price adjustment process. For this purpose, it uses a pure exchange model with two goods and two consumers in which chaotic price fluctuations can arise. In order to reveal some statistical properties of such price dynamics, this study constructs a density function of chaotic trajectory, calculates a long-run average utility, and then compares it with the utility corresponding to a stationary state. The following two results are analytically as well as numerically demonstrated: (1) chaotic price dynamics can be beneficial for one consumer and harmful to the other consumer and (2) the whole economy is possibly better off along chaotic fluctuations than at a stationary state in the long-run. Further, it is shown that the second result is sensitive to the social judgement on the ranking of consumersÕ utilities. These results imply the possibility that chaotic fluctuations can be preferable to a stationary state.