Building Theories of Economic Process

In the previous chapters we have provided proofs of principle for representing institutions as the carriers of process , using strategic market game models highly related in form to those of general equilibrium, but with extra constraints imposed by the institutions sufficient to carry process. Nevertheless, except in Chapter 6 we have avoided explicit treatment of dynamics. Structure may limit, but does not fully specify enough to identify equations without further consideration of intent and behavior. In this chapter we turn explicitly to the problem of constraining dynamics. We begin by considering in varying degrees of brevity the modeling of a few special structures, chosen to meet the criteria that they supply a time path out of equilibrium to a stationary state as well as the proof of existence of a stationary state or growth path. In economics the unifying power of general equilibrium analysis comes from the fact that it is not a model, but rather a collection of principles for building models. This extends to our strategic models in this work.

A survey of strategic market games

The Strategic Market Game (SMG) is the general equilibrium mechanism of strategic reallocation of resources. It was suggested by Shapley and Shubik in a series of papers in the 70s and it is one of the fundamentals of contemporary monetary macroeconomics with endogenous demand for money. This survey highlights features of the SMG and some of the most important current applications of SMGs, especially for monetary macroeconomic analysis.