IDEAS home Printed from https://ideas.repec.org/p/dpr/wpaper/0527.html
   My bibliography  Save this paper

International Spillover of Economic Fluctuations:A Dynamic Optimization Approach

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.iser.osaka-u.ac.jp/library/dp/2001/dp0527.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Rodrik, Dani, 1987. "Trade and capital-account liberalization in a keynesian economy," Journal of International Economics, Elsevier, vol. 23(1-2), pages 113-129, August.
    2. van der Ploeg, Frederick, 1993. "Channels of international policy transmission," Journal of International Economics, Elsevier, vol. 34(3-4), pages 245-267, May.
    3. Frenkel, Jacob A & Razin, Assaf, 1985. "Government Spending, Debt, and International Economic Interdependence," Economic Journal, Royal Economic Society, vol. 95(379), pages 619-636, September.
    4. Natividad, Fidelina & Stone, Joe A., 1990. "A general equilibrium model of exchange market intervention with variable sterilization," Journal of International Economics, Elsevier, vol. 29(1-2), pages 133-145, August.
    5. Ono, Yoshiyasu & Shibata, Akihisa, 1992. "Spill-over effects of supply-side changes in a two-country economy with capital accumulation," Journal of International Economics, Elsevier, vol. 33(1-2), pages 127-146, August.
    6. Turnovsky, Stephen J & Sen, Partha, 1991. "Fiscal Policy, Capital Accumulation, and Debt in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 43(1), pages 1-24, January.
    7. Ono, Y. & Ogawa, K. & Yoshida, A., 1998. "Liquidity Preference and Persistent Unemployment with Dynamic Optimizing Agents," ISER Discussion Paper 0461, Institute of Social and Economic Research, Osaka University.
    8. Hau, Harald, 2000. "Exchange rate determination: The role of factor price rigidities and nontradeables," Journal of International Economics, Elsevier, vol. 50(2), pages 421-447, April.
    9. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    10. Lyons, Richard K., 1990. "Whence exchange rate overshooting: Money stock or flow?," Journal of International Economics, Elsevier, vol. 29(3-4), pages 369-384, November.
    11. Fender, John, 1986. "Monetary and Exchange Rate Policies in an Open Macroeconomic Model with Unemployment and Rational Expectations," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 501-515, November.
    12. Ghosh, Atish R., 1992. "Fiscal policy, the terms of trade, and the external balance," Journal of International Economics, Elsevier, vol. 33(1-2), pages 105-125, August.
    13. Ono, Yoshiyasu, 2001. "A Reinterpretation of Chapter 17 of Keynes's General Theory: Effective Demand Shortage under Dynamic Optimization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 207-236, February.
    14. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
    15. Devereux, Michael B. & Shi, Shouyong, 1991. "Capital accumulation and the current account in a two-country model," Journal of International Economics, Elsevier, vol. 30(1-2), pages 1-25, February.
    16. Gerlach, Stefan, 1989. "Intertemporal speculation, devaluation, and the J-curve," Journal of International Economics, Elsevier, vol. 27(3-4), pages 335-345, November.
    17. Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, vol. 70(1), pages 133-155, October.
    18. Kawai, Masahiro, 1985. "Exchange Rates, the Current Account and Monetary-Fiscal Policies in the Short Run and in the Long Run," Oxford Economic Papers, Oxford University Press, vol. 37(3), pages 391-425, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

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

    More about this item

    Keywords

    UNEMPLOYMNENT ; EXCHANGE RATE ; STOCK MARKET;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:0527. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fumiko Matsumoto). General contact details of provider: http://edirc.repec.org/data/isosujp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.