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Cambridge Journal of Economics 25:639-655 (2001)
Copyright © 2001 Cambridge Political Economy Society

Article

Price rigidity and market-clearing: a conceptual clarification

Michel De Vroey

IRES, 3 Place Montesquieu, 1348 Louvain-la-Neuve, Belgium; devroey{at}ires.ucl.ac.be

Abstract

This article tests the view (derived from Hicks and Patinkin) that non-market clearance may be caused by slow adjustment (‘process rigidity’). There are models where market-rationing is present and derives from some form of rigidity, but this rigidity cannot be considered as process rigidity. It is similarly possible to accommodate the idea of process rigidity within the Marshallian research programme. What is missing is that market-rationing might be its corollary. The reason such a causal link is often believed to exist lies in a generic use of the concept of rigidity, used to designate alternative and incompatible phenomena: ‘exogenous end-state rigidity’ and ‘equilibrium end-state rigidity’, as well as process rigidity. It is true that these first two forms of rigidity create market rationing. The belief that slow adjustment also generates market rationing results from the unwarranted extension to process rigidity of conclusions which are only valid for the first two.

Key Words: Flexibility • Rigidity • Rationing • Unemployment


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