Macroeconomic Volatility and Trade in OLG Economies

Antoine Le Riche
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Antoine Le Riche: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper analyzes the effect of free-trade integration on the dynamical properties of economies. We formulate a two-country two-good two-factor overlapping generations model where countries only differ with respect to their discount rate. The main contribution of this paper is to show that opening to international trade may have a destabilizing effect. Especially we prove that, under perfect mobility of labor and capital between countries, sunspot cycles can occur in the trade regime although one country is characterized by saddle-point stability in the autarky regime.

Keywords: two-sector OLG model; two-country; local indeterminacy; endogenous fluctuations; dynamic efficiency (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-dge and nep-mac
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01079773v3
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