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Endogenous Fluctuations In an Open Economy with Increasing Returns to Scale

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Author Info
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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Abstract

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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File URL: http://dx.doi.org/10.1016/S0165-1889(98)00063-3
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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 98-03.

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Length: 33 pages
Date of creation: Feb 1998
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Publication status: Published in: Journal of Econ Dynamics & Control, 24(1) 2000, 97-125
Handle: RePEc:kud:kuiedp:9803

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Related research
Keywords: endogenous fluctuations; increasing returns to scale; small open economy;

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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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  2. Thomas SEEGMULLER & Alban VERCHÈRE, 2005. "Environment in an Overlapping Generations Economy with Endogenous Labor Supply : a Dynamic Analysis," Working Papers of BETA 2005-05, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  3. Francesco De Palma & Thomas Seegmuller, 2005. "Dual Labor Market and Endogenous Fluctuations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194165_v1, HAL. [Downloadable!]
  4. Orlando Gomes, 2007. "The Dynamics of Growth and Migrations with Congestion Externalities," Economics Bulletin, Economics Bulletin, vol. 15(1), pages 1-8. [Downloadable!]
  5. Guido Cazzavillan & Patrick A. Pintus, 2004. "Robustness of Multiple Equilibria in OLG Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 456-475, April. [Downloadable!] (restricted)
  6. Gomes, Orlando, 2007. "A two-dimensional non-equilibrium dynamic model," MPRA Paper 4817, University Library of Munich, Germany. [Downloadable!]
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  7. Thomas Seegmuller, 2009. "Capital-labor Substitution and Endogenous Fluctuations: a Monopolistic Competition Approach with Variable Mark-up," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194292_v1, HAL. [Downloadable!]
  8. Thomas Seegmuller, 2004. "Endogenous Cycles in aTwo-sector Overlapping Generations Model under Intertemporal Substitutability," Annales d'Economie et de Statistique, ADRES, issue 74, pages 06, Avril-Jui. [Downloadable!]
  9. Teresa Lloyd-braga, 2000. "Increasing Returns to Scale and Nonlinear Endogenous Fluctuations in a Simple Overlapping Generations Models: A Pedagogical Note," Annales d'Economie et de Statistique, ADRES, issue 59, pages 05, Juillet-S. [Downloadable!]
  10. Thomas Seegmuller, 2004. "Endogenous Cycles in a Two-sector Overlapping Generations Model under Intertemporal Substitutability," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194160_v1, HAL. [Downloadable!]
  11. Coimbra, Rui & Lloyd-Braga, Teresa & Modesto, Leonor, 2002. "Endogenous Growth Fluctuations in Unionised Economy with Productive Externalities," CEPR Discussion Papers 3230, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Gomes, Orlando, 2007. "Consumer confidence, endogenous growth and endogenous cycles," MPRA Paper 2883, University Library of Munich, Germany. [Downloadable!]
  13. Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Cahiers de la Maison des Sciences Economiques v05029, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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