RE: [OPE] Constant returns to scale - IRS

Date: Wed Oct 08 2008 - 10:05:22 EDT

Hi Michael W:
I had asked you for an example to support the following statement
"comparative static abstractions can help in the difficult task of interpreting
dynamic models". But, I haven't heard yet a specific example of how static
analysis helped us to better interpret a dynamic model - indeed, you haven't
(unless I am mistaken) referenced a specific dynamic model.
The income effect could be thought of a simple axiom. And, yes, you
could employ that axiom within static analysis. Would this then
_help_ us interpret a dynamic model? I doubt it. The whole point
of dynamic models is to move beyond the 'snapshot' type of comparison
that we see in comparative statics.
I would like you to tell me concretely using a specific dynamic model
(of your choosing) _how_ comparative statics allows us to better interpret
the meaning of a dynamic model.
In solidarity, Jerry
PS: Let us assume that (disposable) income goes up. Does this result in
additional consumption spending? Even Keynes (who did _not_ present a
dynamic theory) would say no. In his theory, because of the role
of expectations.

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Received on Wed Oct 8 10:07:20 2008

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