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History Vs. Expectations

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Paul Krugman

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Abstract

In models with external economies, there are often two or more long run equilibria. Which equilibrium is chosen? Much of the literature presumes that "history" sets initial conditions which determine the outcome, but an alternative view stresses the role of "expectations", i.e. of self-fulfilling prophecy. This paper uses a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2971.

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Date of creation: May 1989
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Handle: RePEc:nbr:nberwo:2971

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  2. Peter Diamond & Drew Fudenberg, 1987. "Rational Expectations Business Cycles in Search Equilibrium," Working papers 465, Massachusetts Institute of Technology (MIT), Department of Economics.
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  3. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October. [Downloadable!] (restricted)
  4. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May. [Downloadable!] (restricted)
  6. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  7. Howitt, Peter & McAfee, R Preston, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 261-77, May. [Downloadable!] (restricted)
  8. Panagariya, Arvind, 1986. "Increasing returns, dynamic stability, and international trade," Journal of International Economics, Elsevier, vol. 20(1-2), pages 43-63, February. [Downloadable!] (restricted)
  9. Kiminori Matsuyama, 1988. "A Theory of Sectoral Adjustment," Discussion Papers 812, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  10. Neary, J Peter, 1978. "Dynamic Stability and the Theory of Factor-Market Distortions," American Economic Review, American Economic Association, vol. 68(4), pages 671-82, September. [Downloadable!] (restricted)
  11. Krugman, Paul, 1981. "Trade, accumulation, and uneven development," Journal of Development Economics, Elsevier, vol. 8(2), pages 149-161, April. [Downloadable!] (restricted)
  12. Kaldor, Nicholas, 1972. "The Irrelevance of Equilibrium Economics," Economic Journal, Royal Economic Society, vol. 82(328), pages 1237-55, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Esteban Jaimovich, 2006. "Sectors Expansion, Allocation of Talent and Adverse Selection in Development," DEGIT Conference Papers c011_018, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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