Journal Article Large Economies with Trading Uncertainty Get access Douglas Gale Douglas Gale London School of Economics Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 2, April 1979, Pages 319–338, https://doi.org/10.2307/2297055 Published: 01 April 1979 Article history Received: 01 September 1975 Accepted: 01 April 1978 Published: 01 April 1979
It has been shown by Kaldor (1939, especially pp. 8-10) that the degree of price stabilizing speculation in a market depends upon two elasticities: (i) the elasticity of expected price with respect to current price, and (ii) the elasticity of speculative excess demand with respect to the difference between current and expected price. Speculation will generally stabilize the current price about the expected price, since a wide gap between the two gives rise to a counteracting pressure on the current price from the speculative excess demand. The smaller the first elasticity the smaller will be the fluctuations in the expected price resulting from fluctuations in underlying factors of supply or demand. The larger is the second elasticity the more closely will fluctuations in the current price reflect fluctuations in the expected price. Kaldor's analysis, like much of the more recent literature on speculation and stability (Friedman (1953), Telser (1959)) addresses the question of whether or not speculation will serve its traditionally cited role of ironing out some of the fluctuations in prevailing market prices that would occur in its absence. The question of speculation and stability has been phrased somewhat differently in the literature on general competitive analysis (Hicks (1939), Enthoven and Arrow (1956), Arrow and Nerlove (1958), Arrow and Hurwicz (1962), Arrow and Hahn (1971, 309-315)) where it is asked whether or not the presence of speculation makes it more likely that the process of market adjustment will converge asymptotically upon an equilibrium. In both of these branches of the literature the focus has been upon the first of Kaldor's elasticities, and the results have confirmed Kaldor's analysis. Putting the question either way, we may say (roughly) that speculation exerts a stabilizing influence if the elasticity of price expectations is less than unity, or if expectations are formed adaptively (Cagan (1956), Arrow and Nerlove (1958)), it exerts no influence on stability if the elasticity is unity, and it exerts a destabilizing influence if the elasticity exceeds unity or if expectations are formed extrapolatively (Arrow and McManus (1958)). The purpose of the present paper is to examine the importance of the second of Kaldor's elasticities for the convergence of the market adjustment process. In the context of a single market it is clear that if this elasticity is large enough the price-adjustment process will be stable, provided that the formation of expectations is not destabilizing, because, regardless of the slope of the non-speculative excess demand curve, a large enough elasticity of the speculative excess demand curve will imply a downward slope to the market excess demand curve. The central question of the present paper is whether or not the analogous result holds in the multi-market economy of general competitive analysis. The answer to this question is vital to the broader issue of the influence of speculation on stability, because the size of this elasticity can be interpreted as defining the existing degree of speculation. The characteristic feature of speculation that distinguishes it from similar activities, such as hedging or investing, that also may be influenced by future price expectations, is that speculation is primarily motivated by the expectation of capital gain, not by the desire to consume or otherwise transform commodities, to avoid risk, or to
Journal Article Target Profits, Cost Expectations and the Incidence of the Corporate Income Tax Get access John Beath John Beath University of Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 3, July 1979, Pages 513–525, https://doi.org/10.2307/2297017 Published: 01 July 1979 Article history Received: 01 April 1977 Accepted: 01 June 1978 Published: 01 July 1979
Journal Article State Preference and the Riskless Interest Rate: A Markov Model of Capital Markets Get access Avraham Beja Avraham Beja New York University and Tel-Aviv University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 3, July 1979, Pages 435–446, https://doi.org/10.2307/2297012 Published: 01 July 1979 Article history Received: 01 September 1976 Accepted: 01 January 1978 Published: 01 July 1979
Journal Article Labour Unions and the Wage Structure: A General Equilibrium Approach Get access John S. Pettengill John S. Pettengill University of Virginia Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 4, October 1979, Pages 675–693, https://doi.org/10.2307/2297035 Published: 01 October 1979 Article history Received: 01 September 1975 Accepted: 01 November 1978 Published: 01 October 1979
Symposium on Incentive Compatibility: Introduction Get access Peter J. Hammond Peter J. Hammond University of Essex Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 2, April 1979, Pages 181–184, https://doi.org/10.2307/2297044 Published: 01 April 1979
Journal Article Transitivity Get access Peter C. Fishburn Peter C. Fishburn Pennsylvania State University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 1, January 1979, Pages 163–173, https://doi.org/10.2307/2297179 Published: 01 January 1979 Article history Received: 01 February 1977 Accepted: 01 April 1978 Published: 01 January 1979
Journal Article Consumer Preferences, Linear Demand Functions and Aggregation in Competitive Asset Markets Get access Frank Milne Frank Milne Australian National University and University of Rochester Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 3, July 1979, Pages 407–417, https://doi.org/10.2307/2297010 Published: 01 July 1979 Article history Received: 01 March 1977 Accepted: 01 September 1978 Published: 01 July 1979
M. June Flanders, Elhanan Helpman; An Optimal Exchange Rate Peg in a World of General Floating, The Review of Economic Studies, Volume 46, Issue 3, 1 July