Simultaneous Price-Quantity Adjustments in the Presence of Spillovers Across Markets
2018
McCurdy, Thomas H. | Yannelis, Demetrius C.
Using a prototype non-market-clearing model, this paper analyses the implications of simultaneous output, price and wage adjustment at finite rates. Firms use a Marshallian-type output adjustment which utilizes available information about notional magnitudes. With this adjustment structure, the Walrasian equilibrium is shown to be globally stable. This result is compared with other formulations of the dynamics: such as, the usual structure which results in a continuum of non-Walrasian equilibria (along a boundary between regimes); and the formulation which excludes the forces of motion on the regime boundaries.
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