This chapter deals with a stylized discrete-time model of a financial market with one risky asset and one risk-free asset, under the interaction of two standard types of investors, fundamentalists and chartists. The model is developed under two alternative market clearing mechanisms, namely, the Walrasian auctioneer and the market maker mechanism. In both cases the price dynamics is described by a two-dimensional nonlinear map, and the two models have the same, unique ’fundamental’ steady state. Comparison of the local stability properties of the steady state under the two price setting scenarios highlights the analytical conditions under which the steady state is locally stable with one market mechanism, but unstable with the other. Such conditions involve the price adjustment parameter of the market maker, in connection to the slope of the aggregate demand curve in the Walrasian auctioneer setting. Numerical simulation reveals, however, that such local properties may be less important in explaining which of the two mechanisms produces larger price fluctuations, when the steady state is destabilized.

N. Angelini, R. Dieci, F. Nardini (2010). The role of market-clearing mechanisms in a simple heterogeneous-agent asset pricing model. NEW YORK : Nova Science Publishers Inc.

The role of market-clearing mechanisms in a simple heterogeneous-agent asset pricing model

ANGELINI, NATASCIA;DIECI, ROBERTO;NARDINI, FRANCO
2010

Abstract

This chapter deals with a stylized discrete-time model of a financial market with one risky asset and one risk-free asset, under the interaction of two standard types of investors, fundamentalists and chartists. The model is developed under two alternative market clearing mechanisms, namely, the Walrasian auctioneer and the market maker mechanism. In both cases the price dynamics is described by a two-dimensional nonlinear map, and the two models have the same, unique ’fundamental’ steady state. Comparison of the local stability properties of the steady state under the two price setting scenarios highlights the analytical conditions under which the steady state is locally stable with one market mechanism, but unstable with the other. Such conditions involve the price adjustment parameter of the market maker, in connection to the slope of the aggregate demand curve in the Walrasian auctioneer setting. Numerical simulation reveals, however, that such local properties may be less important in explaining which of the two mechanisms produces larger price fluctuations, when the steady state is destabilized.
2010
Nonlinear Economic Dynamics
59
72
N. Angelini, R. Dieci, F. Nardini (2010). The role of market-clearing mechanisms in a simple heterogeneous-agent asset pricing model. NEW YORK : Nova Science Publishers Inc.
N. Angelini; R. Dieci; F. Nardini
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/97245
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