STICERD Economic Theory Seminars
Comparative statics with adjustment costs and the le Chatelier principle
Ludvig Sinander (University of Oxford), joint with Eddie Dekel and John K.-H. Quah
Thursday 26 October 2023 15:30 - 17:00
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About this event
We develop a theory of monotone comparative statics for models with adjustment costs. We show that comparative-statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming very little about costs: only a mild monotonicity condition is required. We use this insight to prove a general le Chatelier principle: under the ordinal complementarity assumptions, if short-run adjustment is subject to a monotone cost, then the long-run response to a shock is greater than the short-run response. We extend these results to a fully dynamic model of adjustment over time: the le Chatelier principle remains valid, and under slightly stronger assumptions, optimal adjustment follows a monotone path. We apply our results to models of capital investment and of sticky prices.
Economic Theory Seminars are held on Thursdays in term time at 15:30-17:00, both ONLINE and IN PERSON in SAL 3.05.
Seminar organisers: Dr Andrew Ellis and Dr Christopher Sandmann.
For further information please contact Sadia Ali: firstname.lastname@example.org.
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