Dressing the emperor in a new dynamic outfit

This paper shows that there is a natural extension of the conventional price tâtonnement procedure of pure exchange economies which significantly increases the stability properties of such adjustment processes from a local as well as a global point of view. This extension is motivated by the observation that market price adjustments should not only depend on the levels of excess demand, but also on their direction (and magnitude) of change. Taking these additional forces appropriately into account implies an adjustment process which is formally similar to the Generalized Newton Methods which have been construed in the search for price mechanisms that are ‘universally stable’. Furthermore, this adjustment process also generalizes the stability proof for the ordinary tâtonnement procedure in the case of gross substitutes (by means of a suitable Liapunov function) in a straightforward way.