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Macroeconomic Volatility and Trade in OLG Economies

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  • Antoine Le Riche

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyzes the effect of free-trade integration on the dynamical properties of economies. We formulate a two-country two-good two-factor overlapping generations model where countries only differ with respect to their discount rate. The main contribution of this paper is to show that opening to international trade may have a destabilizing effect. Especially we prove that, under perfect mobility of labor and capital between countries, sunspot cycles can occur in the trade regime although one country is characterized by saddle-point stability in the autarky regime.

Suggested Citation

  • Antoine Le Riche, 2016. "Macroeconomic Volatility and Trade in OLG Economies," Working Papers halshs-01079773, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01079773
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01079773v3
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    References listed on IDEAS

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    8. Nourry, Carine & Venditti, Alain, 2011. "Local indeterminacy under dynamic efficiency in a two-sector overlapping generations economy," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 164-169, March.
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    13. Hu, Yunfang & Mino, Kazuo, 2013. "Trade structure and belief-driven fluctuations in a global economy," Journal of International Economics, Elsevier, vol. 90(2), pages 414-424.
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    Keywords

    two-sector OLG model; two-country; local indeterminacy; endogenous fluctuations; dynamic efficiency;
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