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Price Determination in a Multi-Sector Global Economy

In: Financial Markets and Economic Performance

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  • John E. Silvia

Abstract

Market prices during the 1970s illustrate how prices move from one perceived through a period of disequilibrium and then to a new equilibrium. Prices are seldom at equilibrium, partial equilibrium, and even more with the interactions of other markets, general equilibrium. In addition, price movements may exhibit a short-run cycle around a longer-run trend. In some cases, market price cannot move, or move too much, when we consider incomplete markets thereby generating price volatility. An administered price in one market (fixed exchange rates, central bank administered benchmark rates, or price-controls on commodity prices) may be inconsistent with the long-run equilibrium of that market or with other markets. Price “bubbles” reflect rational choices based upon currently perceived input information but maybe are inconsistent with future shocks and long-run fundamentals. These bubbles offer interesting cases for price discovery.

Suggested Citation

  • John E. Silvia, 2021. "Price Determination in a Multi-Sector Global Economy," Springer Books, in: Financial Markets and Economic Performance, chapter 0, pages 95-146, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-76295-7_3
    DOI: 10.1007/978-3-030-76295-7_3
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