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International Spillover of Economic Fluctuations:A Dynamic Optimization Approach

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  • Ono, Y.

Abstract

After the 1990 Japanese stock market crash the Japanese economy began to stagnate whereas the U.S. economy began to expand, yet the yen tended to appreciate against the dollar. Such a phenomenon is difficult to explain in conventional models. This paper examines its mechanism using a two-country dynamic model that accommodates a liquidity trap and unemployment. If the marginal utility of consumption relative to that of liquidity declines in a country, its current account improves, which appreciates the home currency against the foreign currency. Consequently, home products lose competitiveness, causing home employment to decrease and foreign employment to increase.

Suggested Citation

  • Ono, Y., 2001. "International Spillover of Economic Fluctuations:A Dynamic Optimization Approach," ISER Discussion Paper 0527, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0527
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2001/dp0527.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ofori, F., 2011. "Sources of International Economic Spillovers to Ghana's Economic Growth," MPRA Paper 30455, University Library of Munich, Germany.

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    More about this item

    Keywords

    UNEMPLOYMNENT ; EXCHANGE RATE ; STOCK MARKET;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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