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The Exchange Function and A Dynamic Exchange Model

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  • Li, Wu

Abstract

In the neoclassical economics the tatonnement process is utilized to explain the price change. However, the tatonnement process assumes that there is no trading before the prices reach the equilibrium prices, which is extremely unrealistic since in the markets of the real world the exchange processes usually occur at disequilibrium prices. In this sense, the tatonnement process fails to describe and explain the price fluctuation and the disequilibrium exchange process in the real world. In this paper we introduce an exchange function to describe the exchange process under fixed prices. Based on the exchange function a discrete-time dynamic exchange model is developed. In the model a disequilibrium exchange process occurs in each period, and the prices vary on the basis of the prices and the exchange outcome in the preceding period.

Suggested Citation

  • Li, Wu, 2015. "The Exchange Function and A Dynamic Exchange Model," MPRA Paper 68529, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:68529
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    References listed on IDEAS

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    1. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-320, June.
    2. Carlo Benetti & Christian Bidard & Edith Klimovsky & Antoine Rebeyrol, 2012. "Reproduction And Temporary Disequilibrium: A Classical Approach," Metroeconomica, Wiley Blackwell, vol. 63(4), pages 614-633, November.
    3. Benassy, Jean-Pascal, 1975. "Disequilibrium Exchange in Barter and Monetary Economies," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 131-156, June.
    4. Arestis, Philip, 1996. "Post-Keynesian Economics: Towards Coherence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 20(1), pages 111-135, January.
    5. Song, Xiaochuan, 2003. "A two-sector adaptive economizing model of economic growth," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 585-594, December.
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    More about this item

    Keywords

    exchange economy; disequilibrium; tatonnement process;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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