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The chronic excess demand hypothesis

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Book cover Models of Disequilibrium and Shortage in Centrally Planned Economies

Part of the book series: International Studies in Economic Modelling ((ISIM))

Abstract

In modelling the macroeconomic phenomenon of centrally planned economies (CPEs)1 economists are sharply divided on whether or not chronic shortage is a pervasive and persistent phenomenon at the macroeconomic level. One approach, the so-called chronic shortage or chronic excess demand model, essentially assumes that the demand for goods and services continually outstrips supply, not only for certain individual goods but also in the aggregate. Chronic excess demand is a maintained hypothesis in the majority of these models. The second approach, that of the disequilibrium macroeconometric model, generally makes no assumption concerning the existence of disequilibrium but attempts to detect and measure it if found.2 As a result of the different underlying assumptions and methodologies, there is confusion and disagreement over the existence and significance of shortages in CPEs. Further, the issue of macroeconomic disequilibrium in CPEs (excess aggregate demand coupled with forced savings, in particular), its existence and significance, has often inappropriately been viewed as equivalent to the notion of chronic shortage.3

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  1. David M. Kemme
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Editors and Affiliations

  1. Centre for Russian and East European Studies, University of Birmingham, UK

    Christopher Davis

  2. Department of Economics, University of Leicester, UK

    Wojciech Charemza

  3. University of Gdansk, Poland

    Wojciech Charemza

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Kemme, D.M. (1989). The chronic excess demand hypothesis. In: Davis, C., Charemza, W. (eds) Models of Disequilibrium and Shortage in Centrally Planned Economies. International Studies in Economic Modelling. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-0823-9_4

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  • DOI: https://doi.org/10.1007/978-94-009-0823-9_4

  • Publisher Name: Springer, Dordrecht

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