IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Foreign Trade and Equilibrium Indeterminacy

We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale, making selffulfilling expectations driven busyness cycles easier to arise. This is demonstrated using a standard neoclassical growth model. Calibration exercise shows that the required increasing returns to scale can be reduced by as much as 64% based on estimated share of foreign inputs in production for OECD countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 5/2004.

in new window

Date of creation: 2004
Date of revision:
Handle: RePEc:nip:nipewp:5/2004
Contact details of provider: Postal:
Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal

Phone: +351-253604510 ext 5532
Fax: +351-253601380
Web page:

More information through EDIRC

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers 91-59, C.V. Starr Center for Applied Economics, New York University.
  2. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
  3. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
  4. Benhabib, Jess & Nishimura, Kazuo, 1998. "Indeterminacy and Sunspots with Constant Returns," Journal of Economic Theory, Elsevier, vol. 81(1), pages 58-96, July.
  5. Roberto Perli, . "Indeterminacy, Home Production, and the Business Cycle: a Calibrated Analysis," CARESS Working Papres 97-4, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  6. Weder, Mark, 2000. "Indeterminacy in a Small Open Economy Ramsey Growth Model," CEPR Discussion Papers 2585, C.E.P.R. Discussion Papers.
  7. Costas Azariadis & Roger Guesnerie, 1986. "Sunspots and Cycles," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 725-737.
  8. Meng, Qinglai, 2003. "Multiple transitional growth paths in endogenously growing open economies," Journal of Economic Theory, Elsevier, vol. 108(2), pages 365-376, February.
  9. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  10. Wen, Yi, 2001. "Understanding self-fulfilling rational expectations equilibria in real business cycle models," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1221-1240, August.
  11. Benhabib, Jess & Wen, Yi, 2004. "Indeterminacy, aggregate demand, and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 503-530, April.
  12. Michael Woodford, 1990. "Self-Fulfilling Expectations and Fluctuations in Aggregate Demand," NBER Working Papers 3361, National Bureau of Economic Research, Inc.
  13. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  14. Schmitt-Grohe, Stephanie, 1997. "Comparing Four Models of Aggregate Fluctuations due to Self-Fulfilling Expectations," Journal of Economic Theory, Elsevier, vol. 72(1), pages 96-147, January.
  15. Bennett, Rosalind L. & Farmer, Roger E. A., 2000. "Indeterminacy with Non-separable Utility," Journal of Economic Theory, Elsevier, vol. 93(1), pages 118-143, July.
  16. Benhabib, J. & Meng, Q. & Nishimura, K., 1999. "Indeterminacy Under Constant Returns to Scale in Multisector Economies," Working Papers 99-17, C.V. Starr Center for Applied Economics, New York University.
  17. Qinglai Meng & Andrés Velasco, 2003. "Indeterminacy in a small open economy with endogenous labor supply," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(3), pages 661-669, October.
  18. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, December.
  19. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  20. Weder, Mark, 1998. "Fickle Consumers, Durable Goods, and Business Cycles," Journal of Economic Theory, Elsevier, vol. 81(1), pages 37-57, July.
  21. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nip:nipewp:5/2004. 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: (Maria João Thompson)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.