He defined it as the level of the real interest rate at which prices have no tendency to move either upward or downward. The starting point of his analysis is the assumption that any movement in the price of a single good must have been caused by a mismatch between the demand for and the supply of this particular good.
Accordingly, the movement of the aggregate price level must have been caused by a mismatch between aggregate demand and aggregate supply. Wicksell therefore stressed that any theory which intends to explain the overall rate of inflation must therefore be able to explain the underlying aggregate demand and supply movements.