Trade and indeterminacy revisited

Kazumichi Iwasa, Kazuo Nishimura and Makoto Yano

International Journal of Economic Theory, 2019, vol. 15, issue 1, 37-51

Abstract: We consider a dynamic two‐country model of trade with production externalities with an emphasis on the possibility of global indeterminacy, which means that the distribution of capital stocks in each country in the long run depends on households’ expectations. Opening trade yields expectation‐driven fluctuations. Global indeterminacy may occur around the free trade steady states even when the autarkic steady states are saddle points in both countries, and it must happen when local indeterminacy occurs around the autarkic steady states in both countries.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:15:y:2019:i:1:p:37-51

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