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Transition to Equilibrium in International Trades

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  • Gaël Giraud

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, ESCP-Europe - Campus de Paris)

  • Céline Rochon

    ()
    (Saïd Business School - University of Oxford)

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    Abstract

    Building on Giraud & Tsomocos (2009), we develop a model of non equilibrium international trades with incomplete markets. Trades occur in continuous time, both on international and domestic markets. Traders are assumed to exhibit locally rational expectations on future prices, interest rates and exchange rates. Although currencies turn out to be non-neutral, if their stock grows sufficiently rapidly and if agents can trade assets during a sufficiently long period, the world economy converges in probability towards some interim constrained efficient state. Moreover, a random localized version of the Quantity Theory of Money holds provided the economy is not trapped in a liquidity hole. The traditional theory of comparative advantages, however, turns out to be challenged by international capital mobility.

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    Bibliographic Info

    Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00657038.

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    Date of creation: Jan 2010
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    Handle: RePEc:hal:cesptp:halshs-00657038

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00657038
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    Related research

    Keywords: Currency; cash; liquidity; monetary policy; money; international trade; quantity theory of money; transition to equilibrium.;

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    1. Giraud, Gael, 2003. "Strategic market games: an introduction," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 355-375, July.
    2. Bottazzi, Jean-Marc, 1994. "Accessibility of Pareto optima by Walrasian exchange processes," Journal of Mathematical Economics, Elsevier, vol. 23(6), pages 585-603, November.
    3. J. Doyne Farmer & John Geanakoplos, 2009. "Hyperbolic Discounting Is Rational: Valuing the Far Future with Uncertain Discount Rates," Cowles Foundation Discussion Papers 1719, Cowles Foundation for Research in Economics, Yale University.
    4. Anna Pavlova & Roberto Rigobon, 2003. "Asset Prices and Exchange Rates," NBER Working Papers 9834, National Bureau of Economic Research, Inc.
    5. Gaël Giraud, 2004. "The limit-price exchange process," Cahiers de la Maison des Sciences Economiques b04118, Université Panthéon-Sorbonne (Paris 1).
    6. Sandas, Patrik, 2001. "Adverse Selection and Competitive Market Making: Empirical Evidence from a Limit Order Market," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 705-34.
    7. repec:fth:louvco:9853 is not listed on IDEAS
    8. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
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