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The Cobweb, Borrowing and Financial Crises

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  • P Commendatore
  • M Currie

Abstract

Studies of non-linear cobweb models have failed to address a fundamental issue: whether the complex dynamical behavior displayed by such models is consistent with the survival of producers. This paper shows that where borrowing is unconstrained, as is implicitly assumed in standard cobweb models, borrowing results in financial crises. Incorporating constraints on borrowing is needed to salvage cobweb models. Industry performance (in terms both of profitability and of the incidence of bankruptcies) is highly sensitive to the nature of such credit restrictions.
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  • P Commendatore & M Currie, 2005. "The Cobweb, Borrowing and Financial Crises," Economics Discussion Paper Series 0503, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:0503
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    References listed on IDEAS

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    Cited by:

    1. Christophe Gouel, 2012. "Agricultural Price Instability: A Survey Of Competing Explanations And Remedies," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 129-156, February.
    2. Colucci, Domenico & Valori, Vincenzo, 2011. "Adaptive expectations and cobweb phenomena: Does heterogeneity matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1307-1321, August.
    3. Domenico Colucci & Vincenzo Valori, 2011. "Can Endogenous Participation Explain Price Volatility? Evidence from an Agent-Based Cobweb Model," Computational Economics, Springer;Society for Computational Economics, vol. 38(3), pages 425-437, October.
    4. Pasquale Commendatore & Martin Currie, 2006. "A Dynamical Analysis Of Alternative Forms Of Agricultural Land Tenure," Metroeconomica, Wiley Blackwell, vol. 57(4), pages 443-463, November.
    5. Fu, Min & Xia, Jun & Fan, Xinghua & Tian, Lixin & Wang, Minggang, 2015. "New non-equilibrium cobweb dynamical evolution model and its application," Economic Modelling, Elsevier, vol. 51(C), pages 544-550.

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