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Interacting Business Cycle Fluctuations: A Two-Country Model

Author

Listed:
  • CARL CHIARELLA

    (School of Finance and Economics, University of Technology, Sydney, Australia)

  • PETER FLASCHEL

    (Department of Economics and Business Administration, Bielefeld University, P. O. Box 100131, 33501 Bielefeld, Germany)

  • HING HUNG

    (School of Finance and Economics, University of Technology, Sydney, Australia)

Abstract

In this paper, we develop a model of business cycle fluctuations between two interacting open economies within the disequilibrium or non-market clearing paradigm. We analyze the main feedback mechanisms (Keynes, Mundell, Rose and Dornbusch) driving the dynamics and the conflict between their stabilizing and destabilizing tendencies and how these depend on certain key speeds of adjustment in the real and foreign exchange sectors. We explore numerically a variety of situations of interacting price cycles in the two countries, where the steady state is locally repelling, but where the overall dynamics are bounded in an economically meaningful domain by assuming downward money wage rigidity.

Suggested Citation

  • Carl Chiarella & Peter Flaschel & Hing Hung, 2006. "Interacting Business Cycle Fluctuations: A Two-Country Model," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(03), pages 365-394.
    • Handle: RePEc:wsi:serxxx:v:51:y:2006:i:03:n:s0217590806002433
    DOI: 10.1142/S0217590806002433
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    References listed on IDEAS

    as
    1. Chiarella,Carl & Flaschel,Peter, 2011. "The Dynamics of Keynesian Monetary Growth," Cambridge Books, Cambridge University Press, number 9780521180184.
    2. Sverre Grepperud & Pål Andreas Pedersen, 2001. "The Crowding-out of Work Ethics," Studies in Economics 0102, School of Economics, University of Kent.
    3. Krolzig, Hans-Martin & Peter Flaschel, 2003. "Wage and Price Phillips Curves," Royal Economic Society Annual Conference 2003 128, Royal Economic Society.
    4. Peter Flaschel & Hans-Martin Krolzig, 2003. "Wage and Price Phillips Curves An empirical analysis of destabilizing wage-price spirals," Economics Papers 2003-W16, Economics Group, Nuffield College, University of Oxford.
    5. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, March.
    Full references (including those not matched with items on IDEAS)

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