I don't think that Cold Steel having more dynamic characters is an apt description. Cold Steel improves on P4G in its better combat, larger and more varied areas, updated visuals, etc. However, the characters in P4G were more dynamic and well developed.
CS had a lot more characters, so it's harder to develop them as thoroughly, but they all kind of had one obsession (Elliot -> Music, Laura -> Swordsmanship, Fie -> Sleeping, etc.) and one major life obstacle (Elliot -> Lost mom, Fie -> Growing up on the battlefield, Emma -> Witch, etc.). Outside of the obstacle and the hobby, the characters don't have a lot going on. And they don't change as you interact with them, which makes them, by definition, static.
In P4G, the characters are much more thoroughly developed and they do change in response to your gameplay. Look at Chie; she loves eating, kung fu movies, and helping people. She's always been a tomboy and has felt unfeminine when compared with her best friend. She's shy and doesn't know how to express her emotions, which leads people to misunderstand her or not try to understand her. And more. Look at Kanji; he's got a tough appearance that people mistake for inner toughness, which limits his ability to make friends. Further, he's confused about his sexuality. As part of his confusion he acts tough at times, but lets through his normal side when with his mother or friends, or whatever.
Throughout the game, you can choose to befriend each character, wherein you learn more about them, sure, but doing so also changes how they act outside of those relationship events. Upon raising her social level, Chie will blush when you talk to her or lose her composure around you. If you indicate that you just want to be friends, she takes on a different personality still.
All of the characters are like this with tons of depth and dynamism that CS did not have (probably because there are so many characters and because they want to stretch them across three games). If you do social events with each character, you learn a bit about them, but they don't change in the story. There's like one or two moments in 60hrs of gameplay where befriending a character changes the game, but it's just a different cut scene or event. Further, CS is limited in the depth that they can obtain because they've chosen not to handle really complex character issues, like the sexual, identity, etc. issues that P4G tackled head on.