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International Spillover of Economic Fluctuations:A Dynamic Optimization Approach

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  • Ono, Y.

Abstract

After the 1990 Japanese stock market crash the Japanese economy began to stagnate whereas the U.S. economy began to expand, yet the yen tended to appreciate against the dollar. Such a phenomenon is difficult to explain in conventional models. This paper examines its mechanism using a two-country dynamic model that accommodates a liquidity trap and unemployment. If the marginal utility of consumption relative to that of liquidity declines in a country, its current account improves, which appreciates the home currency against the foreign currency. Consequently, home products lose competitiveness, causing home employment to decrease and foreign employment to increase.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2001/dp0527.pdf
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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0527.

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Length: 23 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:dpr:wpaper:0527

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Keywords: UNEMPLOYMNENT ; EXCHANGE RATE ; STOCK MARKET;

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References

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  16. Ono, Y. & Ogawa, K. & Yoshida, A., 1998. "Liquidity Preference and Persistent Unemployment with Dynamic Optimizing Agents," ISER Discussion Paper 0461, Institute of Social and Economic Research, Osaka University.
  17. Ono, Yoshiyasu, 2001. "A Reinterpretation of Chapter 17 of Keynes's General Theory: Effective Demand Shortage under Dynamic Optimization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 207-36, February.
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Cited by:
  1. Ofori, F., 2011. "Sources of International Economic Spillovers to Ghana's Economic Growth," MPRA Paper 30455, University Library of Munich, Germany.

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