Econometrica: Apr 1958, Volume 26, Issue 2

A Note on Expectations and Stability

https://doi.org/0012-9682(195804)26:2<297:ANOEAS>2.0.CO;2-C
p. 297-305

Kenneth J. Arrow, Marc Nerlove

Demand and supply depend in general not only on current prices but also on expectations. If it is assumed that expectations are formed from past prices in the adaptive way suggested by Cagan and others, it is shown that under certain circumstances the resulting system of multiple markets has dynamic stability.

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