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International Transmission of Bubble Crashes in a Two-Country Overlapping Generations

Author

Listed:
  • Lise Clain-Chamosset-Yvrard

    (Aix-Marseille University (Aix-Marseille School of Economics) and CNRS-GREQAM & EHESS, France)

  • Takashi Kamihigashi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

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

  • Lise Clain-Chamosset-Yvrard & Takashi Kamihigashi, 2015. "International Transmission of Bubble Crashes in a Two-Country Overlapping Generations," Discussion Paper Series DP2015-43, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2015-43
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2015-43.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    International transmission; Stochastic bubbles; Stationary sunspot equilibria; Financial integration;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General

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