Economics at your fingertips  

Income Effects, Wealth Effects, and Multiple Equilibria in Trade Models with Durable Goods*

Eric Bond () and Robert Driskill

Review of International Economics, 2009, vol. 17, issue 2, 357-370

Abstract: We examine the conditions for multiplicity of equilibrium in a dynamic, two‐country model of trade with a durable good of the type proposed by Shimomura (1993, 2004). If trade must balance in each period, we show that there will be a unique autarkic steady‐state equilibrium and that the principle of comparative advantage will hold if the nondurable good is not inferior. A necessary condition for the existence of multiple steady‐state equilibria with free trade is that the marginal propensity to consume a good be higher in the exporting country. We provide an example with three steady states where the “extreme” steady states are saddle points and the “middle” steady state will be either a source or a sink, depending on the intertemporal elasticity of substitution. If there is international lending, this example has the property that there is a range of initial endowments for which there are three distinct and Pareto‐optimal (saddle) paths that can be equilibria. We also show that there must be a unique saddle path from any endowment point with international capital markets when preferences are identical, homothetic, and have constant intertemporal elasticity of substitution.

Date: 2009
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0965-7576

Access Statistics for this article

Review of International Economics is currently edited by E. Kwan Choi

More articles in Review of International Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2020-11-12
Handle: RePEc:bla:reviec:v:17:y:2009:i:2:p:357-370