Dynamic Stability of Post-Keynesian Pricing
Eric Kemp-Benedict ()
The B.E. Journal of Theoretical Economics, 2017, vol. 17, issue 2, 12
Conventional economic theory assumes a Walrasian pricing mechanism that is known to pose theoretical difficulties. Less well-known is that conventional price theory conflicts with empirical studies of price-setting in industrial firms. Post-Keynesian theory, which assumes mark-up pricing on normal costs and infrequent price changes, is consistent with observation, and we show in this paper that post-Keynesian pricing, unlike conventional pricing, features stable dynamics. We focus on the short run, because post-Keynesian theory posits complex and historically-contingent long-term price dynamics. Specifically, we show that under very general conditions, prices converge to a unique equilibrium price vector.
Keywords: general equilibrium; prices; post-Keynesian; Perron-Frobenius theorem; Sraffian (search for similar items in EconPapers)
JEL-codes: E3 C67 B5 (search for similar items in EconPapers)
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