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International transmission of bubble crashes in a two-country overlapping generations model

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  • Clain-Chamosset-Yvrard, Lise
  • Kamihigashi, Takashi

Abstract

We study the international transmission of bubble crashes by analyzing stationary sunspot equilibria in a two-country overlapping generations exchange economy with stochastic bubbles. We consider two cases of sunspot shocks. In the first case, we assume that only the foreign country receives a sunspot shock, while in the second, we assume that both countries independently receive sunspot shocks. In the first case, a bubble crash in the foreign country is always accompanied by a bubble crash in the home country. In the second case, a bubble crash in the foreign country can have a positive or negative effect on the home bubble. We also show that there exists a unique locally isolated stationary sunspot equilibrium, and that it is locally unstable.

Suggested Citation

  • Clain-Chamosset-Yvrard, Lise & Kamihigashi, Takashi, 2017. "International transmission of bubble crashes in a two-country overlapping generations model," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 115-126.
  • Handle: RePEc:eee:mateco:v:68:y:2017:i:c:p:115-126
    DOI: 10.1016/j.jmateco.2016.01.004
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