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Dynamic Stability of Post-Keynesian Pricing

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  • Kemp-Benedict Eric

    (Stockholm Environment Institute, Somerville, MA, USA)

Abstract

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.

Suggested Citation

  • Kemp-Benedict Eric, 2017. "Dynamic Stability of Post-Keynesian Pricing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(2), pages 1-12, June.
    • Handle: RePEc:bpj:bejtec:v:17:y:2017:i:2:p:12:n:3
    DOI: 10.1515/bejte-2016-0013
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    References listed on IDEAS

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    1. Kemp-Benedict, Eric, 2013. "Material needs and aggregate demand," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 44(C), pages 16-26.
    2. Araujo, Ricardo Azevedo & Trigg, Andrew B., 2015. "A neo-Kaldorian approach to structural economic dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 25-36.
    3. Herbert Gintis, 2007. "The Dynamics of General Equilibrium," Economic Journal, Royal Economic Society, vol. 117(523), pages 1280-1309, October.
    4. Paul Downward & Frederic Lee, 2001. "Post Keynesian Pricing Theory “Reconfirmed”? A Critical Review of," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(3), pages 465-483, March.
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    7. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
    8. Kirman, Alan, 1989. "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes," Economic Journal, Royal Economic Society, vol. 99(395), pages 126-139, Supplemen.
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    Cited by:

    1. Eric Kemp‐Benedict, 2020. "Convergence of actual, warranted, and natural growth rates in a Kaleckian–Harrodian‐classical model," Metroeconomica, Wiley Blackwell, vol. 71(4), pages 851-881, November.
    2. Eric Kemp-Benedict & Emily Ghosh, 2018. "Downshifting in the Fast Lane: A Post-Keynesian Model of a Consumer-Led Transition," Economies, MDPI, vol. 6(1), pages 1-17, January.

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    More about this item

    Keywords

    general equilibrium; prices; post-Keynesian; Perron-Frobenius theorem; Sraffian;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches

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