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International transmission of bubble crashes in a two-country overlapping generations model

Lise Clain-Chamosset-Yvrard () and Takashi Kamihigashi

Journal of Mathematical Economics, 2017, vol. 68, issue C, 115-126

Abstract: We study the international transmission of bubble crashes by analyzing stationary sunspot equilibria in a two-country overlapping generations exchange economy with stochastic bubbles. We consider two cases of sunspot shocks. In the first case, we assume that only the foreign country receives a sunspot shock, while in the second, we assume that both countries independently receive sunspot shocks. In the first case, a bubble crash in the foreign country is always accompanied by a bubble crash in the home country. In the second case, a bubble crash in the foreign country can have a positive or negative effect on the home bubble. We also show that there exists a unique locally isolated stationary sunspot equilibrium, and that it is locally unstable.

Keywords: International transmission; Stochastic bubbles; Stationary sunspot equilibria; Financial integration (search for similar items in EconPapers)
Date: 2017
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Working Paper: International transmission of bubble crashes in a two-country overlapping generations model (2017)
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