Marta Aloi (University of Copenhagen Institute of Economics) Huw D. Dixon (University of York) Teresa Lloyd-Braga (Catholic University Palma de Cima, Lisbon)
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In this paper we study the effects of opening an economy, with increasing returns in the production of non traded goods, on the existence of multiple Pareto-ranked stationary equilibria, local indeterminacy and bifurcations. We consider a standard Overlapping Generation Model of a small open economy, with a fixed exchange rate, where labour is the only input and money the only asset. We find that when there are increasing returns, the open economy may display persistent equilibrium endogenous fluctuations (deterministic and stochastic) in the balance of trade and main macroeconomic aggregates.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
98-03.
Length: 33 pages Date of creation: Feb 1998 Date of revision: Publication status: Published in: Journal of Econ Dynamics & Control, 24(1) 2000, 97-125 Handle: RePEc:kud:kuiedp:9803
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Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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