Some Final Remarks

Abstract

One of the central themes in our empirical work has been the demand on price behaviour. In Chapter 2, we argued that a sharp distinction should be drawn between competitive theories which link, via a Walrasian adjustment mechanism, price changes with the level of excess demand, and other price-making theories which indicate a link between price changes and demand changes, and often view that link is an insubstantial one. The distinction between a view which stresses the role of the level of excess demand and a view which stresses the role of changes in demand is clearly crucial in the debate over the control of inflation. Simply, the first view would indicate that low levels of excess demand would generate continuing falls in the rate of price increase (relative to cost increases), whilst the second view would point to a reduction in demand reducing the rate of inflation, but not continuing low levels of demand. Further the second view would often have doubts even about the effect of demand reductions on the pace of inflation.