Preferences, Separability, and the Patinkin Model

Abstract

It has been shown that, in the Patinkin model--where real balances appear in the utility function--the traditional Slutsky results are lost. Here, it is argued that work by Baumol, Tobin, Patinkin, and others implies that the utility function is separable in a specific way. It is then shown that, if the utility function is separable in that way, then the traditional Slutsky results are reinstated.