The Global Correspondence Principle: A Generalization

Jagdish N Bhagwati, Richard Brecher and Tatsuo Hatta

American Economic Review, 1987, vol. 77, issue 1, 124-32

Abstract: This paper generalizes the Global Correspondence Principle by extending, in two major ways, Samuelson's_(1971) analysis of the exchange-rate response to an international purchasing-power transfer. First, the authors analyze the price effect of a shift in anyparameter, not necessarily a transfer. Second, the authors explore the resulting adjustments in any nonprice variable such as welfare. As the analysis shows, the direction of these adjustments depends neither on whether they are small or large nor on whether equilibrium is locally stable or unstable. Thus, the authors generalize the conventional algebra of comparative statics, which typically assumes small shifts from a stable equilibrium. Copyright 1987 by American Economic Association.

Date: 1987
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