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Foreign trade and equilibrium indeterminacy

Luís Aguiar-Conraria () and Yi Wen ()

No 2005-041, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale, making self-fulfilling expectations driven busyness cycles easier to arise. This is demonstrated using a standard neoclassical growth model. Calibration exercise shows that the required increasing returns to scale can be reduced by as much as 64% based on estimated share of foreign inputs in production for OECD countries.

Keywords: International trade; Prices (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2005
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Related works:
Working Paper: Foreign Trade and Equilibrium Indeterminacy (2004) Downloads
Working Paper: Foreign Trade and Equilibrium Indeterminacy (2004) Downloads
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