| Abstract: | In the context of elementary models, this study presents an analysis of how disequilibrium can persist. The central result involves a decentralized economy in which agents respond to local excess demand. Attempting to determine the equilibrium inflation rate or its rate of change as well as the equilibrium price level (rather than the latter only) on the basis of excess demand levels alone, is a time consuming process which can lead to cycles. The inflation rate will lag behind its steady-state value resulting in market disequilibrium when the two coincide. Activist policy is required if equilibrium is to be restored without severe unemployment during the transition. |
