Abstract
The cobweb theorem purports to explain persistent fluctuations of prices in selected agricultural markets. It was first developed in the 1930s under static price expectations where the predicted price equalled actual price in the last period. Muth’s rational expectations hypothesis posited that forecast errors will not be serially correlated and the pattern of past forecast errors cannot be used to improve the accuracy of the forecasts. The fundamental question of whether observed price cycles are better explained by systematic errors in price forecasts or by the cumulative impact of unpredictable shocks has not as yet been definitively addressed.
This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume
This is a preview of subscription content, log in via an institution to check access.
Bibliography
Buchanan, N. 1939. A reconsideration of the cobweb theorem. Journal of Political Economy 47: 67–81.
Coase, R.H., and R.F. Fowler. 1935. Bacon production and the pig-cycle in Great Britain. Economica 2: 142–167.
Ezekiel, M. 1938. The cobweb theorem. Quarterly Journal of Economics 52: 225–280.
Freeman, R.H. 1971. The market for College-trained manpower. Cambridge, MA: Harvard University Press.
Hoffman, D.L., and P. Schmidt. 1981. Testing the restrictions implied by the rational expectations hypothesis. Journal of Econometrics 15: 265–287.
Kaldor, N. 1934. A classificatory note on the determinateness of equilibrium. Review of Economic Studies 1: 122–136.
Mills, E.S. 1961. The use of adaptive expectations in stability analysis: Comment. Quarterly Journal of Economics 75: 330–335.
Muth, J.F. 1961. Rational expectations and the theory of price movements. Econometrics 29: 315–335.
Nerlove, M. 1958. Adaptive expectations and cobweb phenomena. Quarterly Journal of Economics 72: 227–240.
Pashigian, B.P. 1970. Rational expectations and the cobweb theory. Journal of Political Economy 78: 338–352.
Slutzky, E.E. 1937. The summation of random causes as the source of cyclical processes. Econometrica 5: 105–146.
Waugh, F.V. 1964. Cobweb models. Journal of Farm Economics 46: 732–750.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Copyright information
© 2008 The Author(s)
About this entry
Cite this entry
Pashigian, B.P. (2008). Cobweb Theorem. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_600-2
Download citation
DOI: https://doi.org/10.1057/978-1-349-95121-5_600-2
Received:
Accepted:
Published:
Publisher Name: Palgrave Macmillan, London
Online ISBN: 978-1-349-95121-5
eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences
Publish with us
Chapter history
-
Latest
Cobweb Theorem- Published:
- 15 March 2017
DOI: https://doi.org/10.1057/978-1-349-95121-5_600-2
-
Original
Cobweb Theorem- Published:
- 17 November 2016
DOI: https://doi.org/10.1057/978-1-349-95121-5_600-1