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On closure rules: homogeneity and dynamics in applied general equilibrium models

par Dewatripont, Mathias ;Michel, Gilles
Référence Journal of Development Economics, 26, 1, page (65-76)
Publication Publié, 1987

Article révisé par les pairs

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Résumé :

The problem of model 'closure' has been a major focus of the literature on the theoretical aspects of applied general equilibrium models. This paper addresses the issue by focusing on the implicit behavioral assumption leading to the existence of the closure problem. To do this, it uses a simple temporary equilibrium to make explicit the microeconomic behavior underlying these types of models. The closure problem is analyzed through the assumptions on the role of relative prices that it implies. In particular, emphasis is put on two mechanisms - the real balance effect and an expectation effect - in potentially ensuring the existence of an equilibrium. The paper concludes by showing the implications of this analysis for the construction of a theoretical framework for fully dynamic general equilibrium models.