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SMU SOE Seminar (April 6, 2023): Comparative Statics with Adjustment Costs and the Le Chatelier Principle
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TOPIC:
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COMPARATIVE STATICS WITH ADJUSTMENT COSTS AND THE LE CHATELIER PRINCIPLE
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ABSTRACT
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.
Click here to view the CV.
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PRESENTER
Ludvig Sinander
University of Oxford
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RESEARCH FIELDS
Economic Theory
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DATE:
6 April 2023 (Thursday)
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TIME:
4pm - 5.30pm
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VENUE:
Meeting Room 5.1, Level 5
School of Economics
Singapore Management University
90 Stamford Road
Singapore 178903
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