Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model
AbstractIn the present paper, we consider a two-country, two-good, two-factor general equilibrium model with CIES non-linear preferences, asymmetric technologies across countries and decreasing returns to scale. It is shown that aggregate instability and endogenous fluctuations may occur due to international trade. In particular, we prove that the integration into a common market on which countries trade the produced good and the capital input may lead to period-two cycles even when the closed-economy equilibrium is saddle-point stable in both countries.
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Bibliographic InfoPaper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1313.
Length: 40 pages
Date of creation: Mar 2013
Date of revision: Feb 2013
Perfect foresight dynamic general equilibrium model; international trade; aggregate instability; endogenous fluctuations; non-linear preferences;
Other versions of this item:
- Kazuo Nishimura & Alain Venditti & Makoto Yano, 2013. "Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model," Working Papers halshs-00796692, HAL.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-09 (All new papers)
- NEP-DGE-2013-03-09 (Dynamic General Equilibrium)
- NEP-INT-2013-03-09 (International Trade)
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