Tuesday, January 21, 2014

Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 4

Chapter 4 of Paul Downward’s Pricing Theory in Post-Keynesian Economics: A Realist Approach (Cheltenham, UK, 1999) deals with econometric studies on pricing.

Downward considers the work of Neild (1963), Eckstein and Fromm (1968), McCallum (1970), Brechling (1972), and Smith (1982).

Downward finds significant problems with the assumptions and models used in all these studies because of their neoclassical economics (Downward 1999: 75–81).

By contrast, Coutts et al. (1978), Sylos-Labini (1979) and Sawyer (1983) provide far better empirical studies with better theoretical foundations, and they find that prices are not strongly influenced by changes in demand (Downward 1999: 82).

Nevertheless, Downward (1999: 88–92) finds serious problems with conventional econometric studies, along the lines of Keynes’ criticisms of econometrics in his dispute with Tinbergen.

Rather, econometric studies should be embedded within a much broader class of empirical evidence on pricing and price setting (Downward 1999: 92).

Brechling, F. P. R. 1972. “Some Empirical Evidence on the Effectiveness of Prices and Incomes Policies,” in J. M. Parkin and M. T. Sumner (eds.), Incomes Policy and Inflation. Manchester University Press, Manchester.

Coutts, Kenneth, Godley, Wynne and William Nordhaus. 1978. Industrial pricing in the United Kingdom. Cambridge University Press, Cambridge.

Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Eckstein, Otto and Gary Fromm. 1968. “The Price Equation,” The American Economic Review 58.5: 1159–1183.

Geroski, P. 1992. “Price Dynamics in UK Manufacturing: A Microeconomic View,” Economica 59: 403–420.

McCallum, B. T. 1970. “The Effect of Demand on Prices in British Manufacturing: Another View,” Review of Economic Studies 37: 147–156.

Neild, R. R. 1963. Pricing and Employment in the Trade Cycle: A Study of British Manufacturing Industry. Cambridge University Press, Cambridge.

Sawyer, M. 1983. Business Pricing and Inflation. Macmillan, London.

Smith, G. W. 1982. “The Normal Cost Hypothesis: A Reappraisal,” in M. J. Artis, C. J. Green, D. L. Leslie, and G. W. Smith (eds.), Demand Management, Supply Constraints and Inflation, Manchester University Press, Manchester. 213–237.

Sylos-Labini, Paolo. 1979. “Prices and Income Distribution in Manufacturing Industry,” Journal of Post Keynesian Economics 2.1: 3–25.

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