The Transition from a Drèze Equilibrium to a Walrasian Equilibrium
In this paper a continuous time price and quantity adjustment process is considered for an economy facing price rigidities. In the short run prices are assumed to be completely fixed and the markets are cleared by quantity adjustments until a fixed price equilibrium is reached where every market is typically characterized by either supply rationing or demand rationing. Next prices are assumed to move upwards in case of demand rationing on a market and downwards when supply rationing occurs. Markets are kept in equilibrium by infinitesimal quantity adjustments such that at every moment in time a fixed price equilibrium results. Using only standard assumptions on the primitive concepts of the economy it is shown that the price and quantity adjustment process indeed converges to a fixed price equilibrium for the initially given prices. Moreover, in the long run, when prices are allowed to change, the process is shown to reach a Walrasian equilibrium. A simplicial algorithm is developed to approximate the price and quantity adjustment process arbitrarily close. It is shown that the path of price systems and rationing schemes generated by the algorithm converges to the path of the adjustment process.
|Date of creation:||01 Apr 1996|
|Date of revision:|
|Contact details of provider:|| Postal: Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10473945
Web page: http://www.uclouvain.be/ires
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Day, Richard H. & Pianigiani, Giulio, 1991. "Statistical Dynamics and Economics," Working Paper Series 293, Research Institute of Industrial Economics.
- Herings, P.J.J., 1994.
"A globally and universally stable price adjustment process,"
1994-52, Tilburg University, Center for Economic Research.
- Jean-Jacques Herings, P., 1997. "A globally and universally stable price adjustment process," Journal of Mathematical Economics, Elsevier, vol. 27(2), pages 163-193, March.
- 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.
- Herings, P.J.J. & van der Laan, G. & Talman, A.J.J. & Venniker, R., 1997.
"Equilibrium adjustment of disequilibrium prices,"
Other publications TiSEM
22550f27-0bed-4dff-a9de-e, Tilburg University, School of Economics and Management.
- Doup, T.M. & Talman, A.J.J., 1987. "A new simplicial variable dimension algorithm to find equilibria on the product space of unit simplices," Other publications TiSEM 398740e7-fdc2-41b6-968f-4, Tilburg University, School of Economics and Management.
- Keisler, H Jerome, 1996. "Getting to a Competitive Equilibrium," Econometrica, Econometric Society, vol. 64(1), pages 29-49, January.
- Saari, Donald G & Simon, Carl P, 1978. "Effective Price Mechanisms," Econometrica, Econometric Society, vol. 46(5), pages 1097-1125, September.
- G. Laroque, 1981. "A Comment on "Stable Spillovers among Substitutes"," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 355-361.
- van der Laan, G. & Talman, A.J.J., 1987.
"A convergent price adjustment process,"
Other publications TiSEM
0271830c-c03d-46a1-ae6f-f, Tilburg University, School of Economics and Management.
- E. C. H. Veendorp, 1975. "Stable Spillovers among Substitutes," Review of Economic Studies, Oxford University Press, vol. 42(3), pages 445-456.
- Herings, P.J.J., 1994. "A globally and universally stable quantity adjustment process for an exchange economy with price rigidities," Discussion Paper 1994-111, Tilburg University, Center for Economic Research.
- Mas-Colell,Andreu, 1990.
"The Theory of General Economic Equilibrium,"
Cambridge University Press, number 9780521388702, November.
- Keisler, H Jerome, 1995. "Approximate Tatonnement Processes," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 127-73, January.
- Kamiya, Kazuya, 1990. "A Globally Stable Price Adjustment Process," Econometrica, Econometric Society, vol. 58(6), pages 1481-85, November.
- Movshovich, Solomon M., 1994. "A price adjustment process in a rationed economy," Journal of Mathematical Economics, Elsevier, vol. 23(4), pages 305-321, July.
- Day, Richard H. & Pianigiani, Giulio, 1991. "Statistical dynamics and economics," Journal of Economic Behavior & Organization, Elsevier, vol. 16(1-2), pages 37-83, July.
- Mukherji, Anjan, 1995. "A Locally Stable Adjustment Process," Econometrica, Econometric Society, vol. 63(2), pages 441-48, March.
- 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.
- Benassy, Jean-Pascal, 1993. "Nonclearing Markets: Microeconomic Concepts and Macroeconomic Applications," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 732-61, June.
When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:1996013. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne DAVISTER-LOGIST)
If references are entirely missing, you can add them using this form.