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Financial Integration and Aggregate Stability

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  • Yunfang Hu

    ()
    (Graduate School of International Cultural Studies, Tohoku University)

  • Kazuo Mino

    ()
    (Graduate School of Economics, Osaka University)

Abstract

This paper explores a two-country model of capital accumulation with country-specific production externalities. The main concern of our discussion is to investigate equilibrium determinacy (aggregate stability) conditions in a financially integrated world economy. We show that the well-established equilibrium determinacy conditions for the case of small-open economy are still valid if heterogeneity between two countries is small enough. As the technological difference between the countries increases, the equilibrium determinacy conditions may diverge from those for the small country setting.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0901.pdf
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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 09-01.

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Length: 41 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:osk:wpaper:0901

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Keywords: financial integration; two-country model; equilibrium determinacy; social constant returns;

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  17. Eic W. Bond & Robert A. Driskill, 2006. "On Indeterminacy in Two Sector Models with Factor Market Distortions: The Importance of VIPIRS," Vanderbilt University Department of Economics Working Papers 0626, Vanderbilt University Department of Economics.
  18. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2008. "Macroeconomic volatility and welfare loss under free-trade in two-country models," Working Papers halshs-00281377, HAL.
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  22. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2006. "Endogenous Fluctuations In Two-Country Models," The Japanese Economic Review, Japanese Economic Association, vol. 57(4), pages 516-532.
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