Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model

Kazuo Nishimura, Alain Venditti and Makoto Yano

Working Papers from HAL

Abstract: In the present paper, we consider a two-country, two-good, two-factor general equilibrium model with CIES non-linear 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.

Keywords: perfect foresight dynamic general equilibrium model; endogenous fluctuations; non-linear preferences; international trade; aggregate instability (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-dge
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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 (2014)
Working Paper: Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model (2013)
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