Long-Run Comparative Statics

David Baqaee and Hannes Malmberg

No 33504, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What are the long-run effects of permanent changes to the economy? We characterize long-run comparative statics for a broad class of models in terms of expenditure shares, substitution elasticities, and capital supply elasticities. Our key insight is that long-run analysis can be performed using an as-if static economy where capital is treated as an intermediate input subject to endogenous markups. These markups, which measure deviations from the Golden Rule of savings, equal the ratio of capital income to investment. This reframing yields a surprising result: long-run consumption responses follow second-best principles even in efficient economies. In particular, reallocations have first-order effects since the envelope theorem does not apply. Furthermore, sales alone do not summarize industries’ importance for long-run consumption. To show how these points matter in practice, we develop a quantitative model of the world economy to study how markups, tariffs, and productivities affect long-run consumption. The model features input-output linkages, imperfectly elastic capital supply, heterogeneous returns, and endogenous net foreign asset positions. We find large negative first-order effects of tariffs and markups, even when initial tariffs and markups are zero. We also find that the productivities of industries upstream of investment goods have substantially larger long-run consumption effects than their sales shares would suggest.

JEL-codes: E0 E01 E1 E10 E16 E2 E20 F0 F10 F11 F3 F30 F4 F40 O10 O11 O41 (search for similar items in EconPapers)
Date: 2025-02
Note: EFG IFM ITI
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33504.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33504

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33504
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().