ENDOGENOUS FLUCTUATIONS IN TWO‐COUNTRY MODELS*

Kazuo Nishimura, Alain Venditti and Makoto Yano

The Japanese Economic Review, 2006, vol. 57, issue 4, 516-532

Abstract: This paper investigates the interlinkage in the business cycles of large‐country economies in a free‐trade equilibrium. We consider a two‐country, two‐good, two‐factor general equilibrium model with Cobb‐Douglas technologies and linear preferences. We also assume decreasing returns to scale in the consumption good sector. We first identify the determinants of each country's global accumulation pattern in autarky equilibrium, and secondly we show how a country's business cycles may spread throughout the world once trade opens. We thus give capital intensity conditions for local and global stability of competitive equilibrium paths.

Date: 2006
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https://doi.org/10.1111/j.1468-5876.2006.00401.x

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Working Paper: ENDOGENOUS FLUCTUATIONS IN TWO-COUNTRY MODELS (2006)
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