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Dynamic Adjustment of Supply Constrained Disequilibria to Walrasian Equilibrium

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  • Laan, G. van der
  • Talman, A.J.J.

    (Tilburg University, Center for Economic Research)

Abstract

It is well-known that the classical Walrasian tatonnement process of adjusting prices does not need to converge.In several papers Weddepohl has shown cyclic or even chaotic behavior in discrete time tatonnement processes.Starting from a trivial non-trade disequilibrium with complete rationing on the supplies at a given vector of initial prices, a quantity and price adjustment process is proposed, converging always to a Walrasian equilibrium.At any price and rationing system generated by the process all markets clear, only supply rationing occurs, in the short run only rationing schemes are adjusted and in the long run both prices and rationings are adjusted.Furthermore, prices can only take values equal or above their initial values, while supply rationing only may occur when the corresponding price is on its initial value.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-61.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:200261

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Keywords: equilibrium theory;

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  1. van der LAAN, Gerard, . "Simplicial approximation of unemployment equilibria," CORE Discussion Papers RP -467, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Day, Richard H. & Pianigiani, Giulio, 1991. "Statistical dynamics and economics," Journal of Economic Behavior & Organization, Elsevier, vol. 16(1-2), pages 37-83, July.
  3. Weddepohl, Claus, 1987. "Supply-constrained equilibria in economies with indexed prices," Journal of Economic Theory, Elsevier, vol. 43(2), pages 203-222, December.
  4. Van Der Laan, G. & Talman, A. J. J., 1987. "A convergent price adjustment process," Economics Letters, Elsevier, vol. 23(2), pages 119-123.
  5. Saari, Donald G, 1985. "Iterative Price Mechanisms," Econometrica, Econometric Society, vol. 53(5), pages 1117-31, September.
  6. Herbert E. Scarf, 1959. "Some Examples of Global Instability of the Competitive Equilibrium," Cowles Foundation Discussion Papers 79, Cowles Foundation for Research in Economics, Yale University.
  7. Laan, G. van der & Talman, A.J.J., 1985. "Adjustment processes for finding economic equilibria," Research Memorandum 174, Tilburg University, Faculty of Economics and Business Administration.
  8. Claus Weddepohl, 1997. "Simulating tatonnement in a production economy," Economic Theory, Springer, vol. 10(3), pages 551-558.
  9. Herings, P.J.J. & Laan, G. van der & Talman, A.J.J. & Venniker, R., 1994. "Equilibrium adjustment of disequilibrium prices," Discussion Paper 1994-84, Tilburg University, Center for Economic Research.
  10. Veendorp, E C H, 1975. "Stable Spillovers among Substitutes," Review of Economic Studies, Wiley Blackwell, vol. 42(3), pages 445-56, July.
  11. Kamiya, Kazuya, 1990. "A Globally Stable Price Adjustment Process," Econometrica, Econometric Society, vol. 58(6), pages 1481-85, November.
  12. van der Laan, Gerard, 1980. "Equilibrium under Rigid Prices with Compensation for the consumers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 63-73, February.
  13. Smale, Steve, 1976. "A convergent process of price adjustment and global newton methods," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 107-120, July.
  14. Day, Richard H. & Pianigiani, Giulio, 1991. "Statistical Dynamics and Economics," Working Paper Series 293, Research Institute of Industrial Economics.
  15. Dehez, Pierre & Dreze, Jacques H., 1984. "On supply-constrained equilibria," Journal of Economic Theory, Elsevier, vol. 33(1), pages 172-182, June.
  16. Weddepohl, Claus, 1995. "A cautious price adjustment mechanism: Chaotic behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 293-300, July.
  17. Bala, Venkatesh & Majumdar, Mukul, 1992. "Chaotic Tatonnement," Economic Theory, Springer, vol. 2(4), pages 437-45, October.
  18. van der Laan, Gerard, 1984. "Supply-constrained fixed price equilibria in monetary economies," Journal of Mathematical Economics, Elsevier, vol. 13(2), pages 171-187, October.
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