The Long Run Evolution of a Rationed Equilibrium Model
In his recent book "The Theory of Unemployment Reconsidered" Malinvaud (1977) presents a model in which prices and wages are fixed and equilibria are achieved by quantity adjustments in the goods and labour markets. These adjustments are effected by rationing schemes. This model, although it provides a framework for macroeconomic analysis, has the drawback that it is wholly static. The notion that prices and wages are completely rigid in the short run is acceptable as an idealisation of the real situation. However, in the longer term market forces must influence prices and wages, and the latter will respond to excess demands and supplies in different markets. Our aim is to specify such an adjustment process, which will be slow relative to the quantity adjustments in each market, and then to examine the evolution and stability of prices and wages. Although it is possible with suitable assumptions to obtain stability results, the framework inherired from Malinvaud and developed by Hildenbrand and Hildenbrand (1976) is not a wholly satisfactory one in which to study the dynamics of prices and wages. In particular the simple imposition of a plausible adjustment process on the Malinvaud model does not produce the sort of phonomena one might naturally expect to observe. This raises some interesting, and we think fundamental problems, which will bot be described here, but will be the subject of a later paper by one of us.
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