It would be a silly question. In a model, I have found the BGP (balanced growth path) for all key variables.

As expected, these variables are constant variables ;


All paramaters on the right hand side are exogeneous constant parameters. Let's say $\mu$ is a variable for technological progress level.

For another variable, let's say capital accumulation $k$,I find a constant growth rate which is ;


The parameters on the RHS are again exogenous parameters.

My question is : Is it possible to see the effect of the variable $\mu$ on the growth rate of capital $g_k$ ?

My way of doing seems to me a little bit weird. I firstly put


and replace it in $g_k$. So, I have


After, I say that technological progress level at BGP affects positevly the growth rate of capital.

Do you think that it is correct to say that ? Making this kind of comparative statics analysis ?

Or any other way to do it in a more appropriate way ?


1 Answer 1


The approach is not correct, because $\mu^{BGP}$ is a result of underlying structural parameters. So to say "when $\mu^{BGP}$ increases..." immediately begs the question why it increases, which underlying parameter(s) has changed to cause such an increase... assume it was $\epsilon$ that decreased. But in this case $g_k$ is not affected at all, so you see that you cannot claim what you claim about $\mu^{BGP}$ affecting positively $g_k$.

What is meaningful to do is to perform comparative statics for the exogenous parameters, and record whether $\mu^{BGP}$ and $g_k$ move in the same or the opposite direction (or don't move) in each case. It may not be a causal link, but co-movement is also a useful result, and testable.


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