Price adjustment models in a production economy

C. Weddepohl

Annals of Operations Research, 1999, vol. 89, issue 0, 149-164

Abstract: In a simple economy (a produced good and labour), a discrete‐time tatonnement processconverges only at low rates of adjustment and shows cycles and chaotic behaviour at higherrates, where prices in turn go up and down. The same holds for a sequence of fixed priceequilibria, with price adjustment directed by effective excess demands. We look at the casewhere two markets open consecutively, the labour market first. Labour demand, productionand goods supply are determined by expectations, depending on the demand of the previousperiod. This again leads to cycles and chaos, but also to long periods of ascent and decline. Copyright Kluwer Academic Publishers 1999

Date: 1999
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DOI: 10.1023/A:1018967405289

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