Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model

Kazuo Nishimura, Alain Venditti and Makoto Yano

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Abstract: In the present paper, we consider a two-country, two-good, two-factor general equilibrium model with CIES nonlinear preferences, asymmetric technologies across countries and decreasing returns to scale. It is shown that aggregate instability and endogenous fluctuations may occur due to international trade. In particular, we prove that the integration into a common market on which countries trade the produced good and the capital input may lead to period-two cycles even when the closed-economy equilibrium is saddle-point stable in both countries. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Endogenous fluctuations; Aggregate instability; Aggregate instability; C62; E32; Economics general; Economic Theory; End; F43; F11; Perfect foresight dynamic general equilibrium model; O41; Nonlinear preferences; International trade; Social and Behav. Sciences; Economics; Game Theory (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

Published in Economic Theory, 2014, 55 (2), pp.357--392. ⟨10.1007/s00199-013-0758-y⟩

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Related works:
Journal Article: Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model (2014)
Working Paper: Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model (2013)
Working Paper: Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01463927

DOI: 10.1007/s00199-013-0758-y

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