Timeline for Question from an economist: solving a model of traders' behavior with expectations about the future values of the variable they are currently optimizing
Current License: CC BY-SA 2.5
4 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Mar 27, 2012 at 19:04 | comment | added | Arthur B | I'm not buying the model. The quantity demanded is available to the trader before he sets the price, it's very weird. | |
| Mar 3, 2011 at 23:23 | comment | added | John | Let $V_{-1}$ be any arbitrary number, and let $P_{-1}=V_{-1}$. You are right that $P_t$ depends exactly on expectations about $P_{t+1}$. But I was hoping to find a solution for $P_t$ in terms of just the stochastic innovations driving the system, $x_{t+s}$ and $V_{t+s}$. I think the trick to this problem is that although the innovations to $V_t$ are exogenous, the innovations $x_{t+s}$ are not, because they depend on past prices, which in turn depend on future expectations. I think the solution must therefore involve some kind of equilibrium. | |
| Mar 3, 2011 at 22:30 | comment | added | BSteinhurst | What initial conditions are you putting on $V$ and $P$? I.e. what is $V_{-1}$ and $P_{-1}$? Also, when your profit process includes the true version of the future why do you expect that the price process should not include some estimates of $P_{t+1}$? | |
| Mar 3, 2011 at 20:28 | history | asked | John | CC BY-SA 2.5 |