Talk:Overshooting model

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You have new messages (last change).

changed it around a bit, still another small bit to complete

eamo

I've added the key references for Dornbusch's "overshooting model". The text about it now needs some work. (For one thing, the parentheses in the formula don't balance.)

The key insight from Dornbusch is that lags in some parts of the economy can induce additional volatility in others to compensate. Dornbusch wrote this back when many economists were still claiming that ideal markets should reach equilibrium and stay there. Volatility was thought to be a consequence of imperfect information or market obstacles. But it's not; volatility is more fundamental than that.

It's a neat result. Read Rogoff's paper, now linked on the article page.

Someone with a strong economics background needs to review this. --John Nagle 04:58, 13 April 2006 (UTC)

I'm currently trying to clean up, expand and cite the article. I think between the citations added and the Romer citation I just added, the citation notification can be removed. Thoughts?
I'm not convinced that the explaination given is correct. But I don't feel qualified to edit it myself. It really does need someone with a strong economics background. --John Nagle 04:27, 22 April 2006 (UTC)
Oops thought I signed. Well, I'm a PhD candidate at George Mason University so I'd like to think I have a strong economics background, at least strong enough to edit the article. (By the way, how does one make graphs for Wikipedia? There's a great graph that goes with this model but I have no idea how to make a computer one...what's the program everyone's using?) David Youngberg 16:20, 23 April 2006 (UTC)
OpenOffice Draw is popular for graphs.
I'm more of a control theory person. This result is well known in control theory; a feedback system with two different lags will usually generate some oscillation and overshoot. Economics has a historical tendency to assume that feedback leads to stability, which isn't really the case. This paper is significant because it finally made the economics community accept that instability is inherent, not a product of non-ideal markets. The article somehow should capture those ideas. (Now finance people do get this; you can take courses on how to use Laplace transforms to stabilize your cash flow. [1]). --John Nagle 16:52, 23 April 2006 (UTC)
Well, the role of stability is something completely different but this model doesn't predict "instability." Few models do (because of simplifying assumptions, mostly). All the model says is there will be overvaluing at first but will settle down as sticky prices adjust. David Youngberg 03:52, 26 April 2006 (UTC)
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