SFB 303 Discussion Paper No. A-408

Author: Hens, Thorsten, and Kurt Hildenbrand
Title: Stability of General Equilibrium: Simultaneous versus Sequential Adjustment Processes
Abstract: In an exchange economy we compare local asymptotic stability of a tatonnement process with that of an "iterative" process. In the tatonnement process current prices simultaneously determine current income and current demand. Whereas in the iterative process this "double role of the prices" is splitted since last period's prices determine current period's income and for given income current period's prices determine current period's demand. It is shown - under the working hypothesis that market demand for a fixed distribution of income is a monotone function - that the iterative process is unstable when the tatonnement processs is unstable. Furthermore, for Scarf's example it is shown for many distributions of endowments that the iterative process is unstable even though the tatonnement process is stable. Thus the "sequential" iterative adjustment process has worse stability properties than the "simultaneous" tatonnement process.
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Creation-Date: April 1993
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