Static, Comparative Static and Dynamic Studies in Economics

The term static, comparative static and dynamic is frequently appear in economic analysis. It is the fundamental discipline that economist must have in advance before writting or reading any paper in this field.

What is mean by static, comparative static and dynamic study?
The word static originate from the field of physic. It is used to denote some kind of movement in which speed is constantly maintained. Alike, in economic static mean the studies focus only on particular period of time. It is similar to taking a photo when you press the button for a shot then the photo is just at a particular point of time. In economic most paper is a static analysis, for instance, we say the market is in equilibrium when demand and supply equate one another, which is graphically represent by the intersection point of demand and supply curve. This is a static analysis since we just only see the picture at a point of time.

Dose the equilibrium point will remain there for long? Is there any force that can push make the equilibrium move to new one or disequilibrium one? Or simply before arriving at the equilibrium what is the path that demand and supply have to change? These question can not be answer by static analysis.

Comparitive Static is a studies which focus on the external force that make the equilibrium in the model change. The external force here refere to exogenous variables. In economic we have two types of variables: endogenous and exogenous variables. Endogenous mean any variable define within the model whereas the exogenous variable refere to constant term or parameter where its value is defined outside the model. Let give a simple example of comparative static study: The keynsain model of IS-LM which represents both equilibrium in goods market and money market is a very convenient example of comparative static.

Suppose there is an equilibrium in good market that is aggreagate demand and aggregate supply equal. According to Keyn the equilibrium in goods market define equilibrium level of output and interest rate. The level of output then represents a level of empolyment. Keyn beleive that labor market is unclear-that is the supply of labor exceed the demand that why we always have unemployment. Labor market is unclear because wage is rigid in the short run (a contract between woker and employer prohibit the wage to change in the short time).

As labor market is unlcear then the government play role in creating job through fiscal and monetary policy. Fiscal policy is applied through taxation and goverment expenditure. In macroeconomic it is called multiplier effect.

Returning to comparative static, let suppose the good market is in equilibrium then suppose the government want to increase more output then it needs to increase more employment by using the government expenditure then the equilibrium will move to the new one as the expendiure is the exogenous variable change. Comaparative static is similar to taking photos at many different point of time.

How about dynamic anlysis? Dynamic we focus on the change of time and how the equilibrium change with time. It is the same as watching the movie you can see how the image animate and movement. Dynamic analysis allow us to see the path of variable how the variable change with time. It help us to see wheter the equibirium will reach or not. In dynamic economic the study of time path of variable is to see wheather the variable will converge to a point which we called stable or steady state or will it diverge (the saddle point). The detail for the study of dynamic economic is useful in advance marcroeconomic. You can familiar with it by reading textbook such as Advance macroeconomic by David Romer or Economic Growth by Robert Barro and Xala-i-Martin. However the material is quite difficult becuause the mathematical such as differential equations or optimization control are highly advanced.

In summary, economist have to choose which kind of study they prefere before starting to write the paper. For my case static or comparative static is enough. How about you?

The detail I wrote here is mainly based on Alpha Chang, The Fundamental Mathematical Economics


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s