Total Response Measures in Systems of Nonlinear Equations: An Application to a Model of the U.S. Dairy Sector

This paper develops total elasticity and flexibility results for general nonlinear, dynamic systems of equations. Unlike procedures for obtaining total response measures in linear systems, analytical procedures are difficult to obtain for nonlinear models; comparable results, however, may be obtained by using numerical simulations. The potential for obtaining total elasticity measures in nonlinear dynamic models is illustrated with an annual model of the U.S. dairy sector. Results show substantial evidence of asymmetric price and quantity adjustments, as well as limit cycles. Such complexities could not be uncovered by using linear models or a partial-equilibrium framework.