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MONETARY PRICE RULES FOR ALTERNATIVE STEADY‐STATE REGIMES
Author(s) -
Obst Norman P.
Publication year - 1989
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1989.tb00449.x
Subject(s) - disequilibrium , economics , inflation (cosmology) , context (archaeology) , unemployment , lag , general equilibrium theory , keynesian economics , inflation rate , monetary policy , macroeconomics , monetary economics , microeconomics , econometrics , physics , medicine , paleontology , computer network , biology , theoretical physics , computer science , ophthalmology
In the context of elementary models, this study presents an analysis of how disequilibrium can persist. The central result involves a decentralized economy in which agents respond to local excess demand. Attempting to determine the equilibrium inflation rate or its rate of change as well as the equilibrium price level (rather than the latter only) on the basis of excess demand levels alone, is a time consuming process which can lead to cycles. The inflation rate will lag behind its steady‐state value resulting in market disequilibrium when the two coincide. Activist policy is required if equilibrium is to be restored without severe unemployment during the transition.