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Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model

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Author Info

  • Kazuo Nishimura

    (Institute of Economic Research, Kyoto University - Kyoto University)

  • Alain Venditti

    ()
    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie)

  • Makoto Yano

    (Institute of Economic Research, Kyoto University - Kyoto University)

Abstract

In 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 Info

Paper provided by HAL in its series Working Papers with number halshs-00796692.

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Date of creation: Feb 2013
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Handle: RePEc:hal:wpaper:halshs-00796692

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Keywords: perfect foresight dynamic general equilibrium model; international trade; aggregate instability; endogenous fluctuations; non-linear preferences;

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