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Endogenous Fluctuations In an Open Economy with Increasing Returns to Scale

Author

Listed:
  • Marta Aloi

    (University of Copenhagen Institute of Economics)

  • Huw D. Dixon

    (University of York)

  • Teresa Lloyd-Braga

    (Catholic University Palma de Cima, Lisbon)

Abstract

In this paper we study the effects of opening an economy, with increasing returns in the production of non traded goods, on the existence of multiple Pareto-ranked stationary equilibria, local indeterminacy and bifurcations. We consider a standard Overlapping Generation Model of a small open economy, with a fixed exchange rate, where labour is the only input and money the only asset. We find that when there are increasing returns, the open economy may display persistent equilibrium endogenous fluctuations (deterministic and stochastic) in the balance of trade and main macroeconomic aggregates.

Suggested Citation

  • Marta Aloi & Huw D. Dixon & Teresa Lloyd-Braga, 1998. "Endogenous Fluctuations In an Open Economy with Increasing Returns to Scale," Discussion Papers 98-03, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:9803
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    File URL: http://dx.doi.org/10.1016/S0165-1889(98)00063-3
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    References listed on IDEAS

    as
    1. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-137, February.
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    8. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick A., 1998. "Multiple Steady States and Endogenous Fluctuations with Increasing Returns to Scale in Production," Journal of Economic Theory, Elsevier, vol. 80(1), pages 60-107, May.
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    Citations

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    Cited by:

    1. Orlando Gomes, 2010. "Deterministic randomness in a model of finance and growth," Journal of Evolutionary Economics, Springer, vol. 20(1), pages 95-114, January.
    2. Orlando Gomes, 2006. "Endogenous Business Cycles in the Ramsey Growth Model," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 9(2), pages 13-36, November.
    3. De Palma, Francesco & Seegmuller, Thomas, 2004. "Unions, wage differential and indeterminacy," Research in Economics, Elsevier, vol. 58(3), pages 205-218, September.
    4. repec:ebl:ecbull:v:15:y:2007:i:1:p:1-8 is not listed on IDEAS
    5. Andreas Wagener, 2003. "Equilibrium dynamics with different types of pay-as-you-go pension schemes," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-12.
    6. Thomas Seegmuller, 2004. "Endogenous Cycles in aTwo-sector Overlapping Generations Model under Intertemporal Substitutability," Annals of Economics and Statistics, GENES, issue 74, pages 131-146.
    7. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2005. "Non-linear endogenous fluctuations with free entry and variable markups," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 847-871, May.
    8. Fanti, Luciano & Gori, Luca, 2011. "Public health spending, old-age productivity and economic growth: Chaotic cycles under perfect foresight," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 137-151, April.
    9. Thomas Seegmuller, 2009. "Capital-Labour Substitution And Endogenous Fluctuations: A Monopolistic Competition Approach With Variable Markup," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 301-319.
    10. repec:bla:ijethy:v:13:y:2017:i:4:p:401-425 is not listed on IDEAS
    11. Gomes, Orlando, 2006. "Heterogeneous Researchers in a Two-Sector Representative Consumer Economy," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 60(2), November.
    12. De Palma, Francesco & Seegmuller, Thomas, 2005. "Dual Labor Market And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 9(03), pages 398-411, June.
    13. Coimbra, Rui & Lloyd-Braga, Teresa & Modesto, Leonor, 2002. "Endogenous Growth Fluctuations in Unionised Economy with Productive Externalities," CEPR Discussion Papers 3230, C.E.P.R. Discussion Papers.
    14. repec:ebl:ecbull:v:8:y:2003:i:6:p:1-12 is not listed on IDEAS
    15. repec:hal:journl:halshs-00194358 is not listed on IDEAS
    16. Gomes, Orlando, 2009. "A two-dimensional non-equilibrium dynamic model," Structural Change and Economic Dynamics, Elsevier, vol. 20(3), pages 221-238, September.
    17. repec:hal:journl:halshs-00194292 is not listed on IDEAS
    18. Orlando Gomes, 2010. "Consumer confidence, endogenous growth and endogenous cycles," Journal of Economic Studies, Emerald Group Publishing, vol. 37(4), pages 377-404, September.
    19. Orlando Gomes, 2007. "The Dynamics of Growth and Migrations with Congestion Externalities," Economics Bulletin, AccessEcon, vol. 15(1), pages 1-8.
    20. Guido Cazzavillan & Patrick A. Pintus, 2004. "Robustness of Multiple Equilibria in OLG Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 456-475, April.

    More about this item

    Keywords

    endogenous fluctuations; increasing returns to scale; small open economy;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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