AN OBTRUSIVE REMARK ON CAPITAL AND COMPARATIVE STATICS

Gaetano Bloise and Pietro Reichlin

Metroeconomica, 2009, vol. 60, issue 1, pages 54-76

Abstract: We present a simple comparative statics analysis of steady-state equilibria in overlapping generations economies with capital accumulation. We regard comparative statics as paradoxical whenever an exogenous increase in saving propensity induces a decrease (an increase) in consumption at the steady state when interest rate is positive (negative). It is shown that there is an exact relation between paradoxical comparative statics and a perverse intersection of properly identified curves of demand for and supply of capital in value. The demand curve for capital in value coincides with that of neo-Ricardian analysis. We relate our conclusions to some old and recent issues in capital theory. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.

Date: 2009

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