Comparative Statics With Adjustment Costs and the Le Chatelier Principle

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 saving, production, pricing, labor supply, and investment.

• Publication year

  2022

• Venue

  Econometrica

• Publication date

  2022-06-01

• Fields of study

  Economics

• Identifiers
  DOI 10.3982/ECTA22841arXiv 2206.00347
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

• Comparative Statics With Linear Objectives: Normality, Complementarity, and Ranking Multi‐Prior Beliefs

  2024cited by this paper
• Lumpy Investment, Business Cycles, and Stimulus Policy

  2021cited by this paper
• Asset-based microfinance for microenterprises: Evidence from Pakistan

  2021cited by this paper
• Wishful Thinking

  2019cited by this paper
• Consumption Commitments and Habit Formation

  2016cited by this paper
• Mindful Economics: The Production, Consumption, and Value of Beliefs

  2016cited by this paper
• Mindful Economics : The Production , Consumption , and Value of Beliefs

  2016cited by this paper
• Supermodularity And Complementarity

  2016influential reference
• Monetary policy, inflation, and the business cycle : an introduction to the new Keynesian framework and its applications

  2015cited by this paper
• The Economics of Motivated Beliefs

  2015cited by this paper
• Monopolistic Price Adjustment and Aggregate Output

  2015cited by this paper
• Consumption Dynamics During Recessions

  2014cited by this paper
• Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model

  2013cited by this paper
• Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India †

  2013cited by this paper
• Aggregating the single crossing property

  2012cited by this paper
• Bounds on Elasticities with Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply

  2012cited by this paper
• Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records.

  2011cited by this paper
• A Model of the Consumption Response to Fiscal Stimulus Payments

  2011cited by this paper
• Menu Costs and Phillips Curves

  2007cited by this paper
• On the Nature of Capital Adjustment Costs

  2006cited by this paper
• Insider trading in continuous time

  2006cited by this paper
• Monotone Comparative Statics under Uncertainty

  2002cited by this paper
• Wishful thinking.

  1998cited by this paper
• The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains

  1997cited by this paper
• The LeChatelier Principle

  1996influential reference
• Monotone Comparative Statics

  1994cited by this paper
• Insider Trading in Continuous Time

  1992cited by this paper
• Stochastic Monotonicity and Stationary Distributions for Dynamic Economies

  1992cited by this paper
• State-Dependent Pricing and the Dynamics of Money and Output

  1991cited by this paper
• Firing Costs and Labour Demand: How Bad is Eurosclerosis?

  1990cited by this paper
• Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities

  1990influential reference
• Labor Demand and the Structure of Adjustment Costs

  1988cited by this paper
• Menu Costs and the Neutrality of Money

  1987cited by this paper
• Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods

  1987cited by this paper
• Continuous Auctions and Insider Trading

  1985influential reference
• Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly

  1985influential reference
• TOBIN'S MARGINAL q AND AVERAGE q: A NEOCLASSICAL INTERPRETATION

  1982cited by this paper
• Minimizing a Submodular Function on a Lattice

  1978cited by this paper
• A General Equilibrium Approach to Monetary Theory

  1969cited by this paper
• Capital Theory and Investment Behavior

  1963influential reference
• The Theory of Decision Procedures for Distributions with Monotone Likelihood Ratio

  1956cited by this paper
• Foundations of Economic Analysis.

  1948cited by this paper
• On the Nature of Capital

  1908influential reference
• Federal Reserve Bank of Minneapolis Research Department Staff Report 302 Is Lumpy Investment Relevant for the Business Cycle?

  year unknowncited by this paper

• No citing papers are available for this paper.