Abstract
This chapter discusses the effect of an international transfer in a dynamic general equilibrium model. In a static general equilibrium model, as is well known, an exogenous change has substitution effects on both production and consumption and income effects on consumption. Counterparts to these effects, naturally, exist in a dynamic model. Substitution effects work both intersectorally and intertemporally. Income effects work on the consumption side. Moreover, what may be called capital accumulation effects work on the production side, because an exogenous change generally affects the path of capital accumulation. The chapter focuses on the first step toward building the method of local comparative dynamics for a simple dynamic general equilibrium model. The chapter discusses a method of local comparative statics that can characterize the effect of an exogenous change in terms of intertemporal and intersectoral substitution effects, income effects, and capital accumulation effects. Although, in the existing literature, the dynamic effect of a transfer has not been related to these effects, it has been analyzed by several studies.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call