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Efficiency on the dynamic adjustment path in a financial market
The invisible hand of a perfectly competitive financial market refers to the self-regulating behavior of the market where if each consumer and producer of funds is allowed to freely make their own choices, the market settles at an efficient outcome which is beneficial to all the individual members o...
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Formato: | Online Artículo Texto |
Lenguaje: | English |
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Springer US
2020
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Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7494366/ http://dx.doi.org/10.1007/s12197-020-09523-7 |
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author | Nawaz, Nasreen |
author_facet | Nawaz, Nasreen |
author_sort | Nawaz, Nasreen |
collection | PubMed |
description | The invisible hand of a perfectly competitive financial market refers to the self-regulating behavior of the market where if each consumer and producer of funds is allowed to freely make their own choices, the market settles at an efficient outcome which is beneficial to all the individual members of the society and hence to the society as a whole. Two well-known facets of the invisible hand are generally mentioned in the economics and finance literature - the first one is a static picture of a perfectly competitive market, i.e., a competitive market is efficient in an equilibrium; and the second one is that if the competitive market is disturbed from its equilibrium position, in the absence of a market failure and frictions, the market automatically settles at a new efficient equilibrium. This paper takes into account a third facet, i.e., how efficient is a perfectly competitive financial market on the dynamic adjustment path after an economic shock in the absence of all kinds of frictions and interest rate rigidities. We conclude that coordinated actions of economic agents can result in a level of economic efficiency on the dynamic adjustment path which is not achievable by a free market mechanism. ELECTRONIC SUPPLEMENTARY MATERIAL: The online version of this article (10.1007/s12197-020-09523-7) contains supplementary material, which is available to authorized users. |
format | Online Article Text |
id | pubmed-7494366 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2020 |
publisher | Springer US |
record_format | MEDLINE/PubMed |
spelling | pubmed-74943662020-09-17 Efficiency on the dynamic adjustment path in a financial market Nawaz, Nasreen J Econ Finan Article The invisible hand of a perfectly competitive financial market refers to the self-regulating behavior of the market where if each consumer and producer of funds is allowed to freely make their own choices, the market settles at an efficient outcome which is beneficial to all the individual members of the society and hence to the society as a whole. Two well-known facets of the invisible hand are generally mentioned in the economics and finance literature - the first one is a static picture of a perfectly competitive market, i.e., a competitive market is efficient in an equilibrium; and the second one is that if the competitive market is disturbed from its equilibrium position, in the absence of a market failure and frictions, the market automatically settles at a new efficient equilibrium. This paper takes into account a third facet, i.e., how efficient is a perfectly competitive financial market on the dynamic adjustment path after an economic shock in the absence of all kinds of frictions and interest rate rigidities. We conclude that coordinated actions of economic agents can result in a level of economic efficiency on the dynamic adjustment path which is not achievable by a free market mechanism. ELECTRONIC SUPPLEMENTARY MATERIAL: The online version of this article (10.1007/s12197-020-09523-7) contains supplementary material, which is available to authorized users. Springer US 2020-09-17 2021 /pmc/articles/PMC7494366/ http://dx.doi.org/10.1007/s12197-020-09523-7 Text en © Academy of Economics and Finance 2020 This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic. |
spellingShingle | Article Nawaz, Nasreen Efficiency on the dynamic adjustment path in a financial market |
title | Efficiency on the dynamic adjustment path in a financial market |
title_full | Efficiency on the dynamic adjustment path in a financial market |
title_fullStr | Efficiency on the dynamic adjustment path in a financial market |
title_full_unstemmed | Efficiency on the dynamic adjustment path in a financial market |
title_short | Efficiency on the dynamic adjustment path in a financial market |
title_sort | efficiency on the dynamic adjustment path in a financial market |
topic | Article |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7494366/ http://dx.doi.org/10.1007/s12197-020-09523-7 |
work_keys_str_mv | AT nawaznasreen efficiencyonthedynamicadjustmentpathinafinancialmarket |