Interacting Two-Country Business Fluctuations

Toichiro Asada (), Carl Chiarella, Peter Flaschel and Reiner Franke ()
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Toichiro Asada: Faculty of Economics, Chuo University, Tokyo, Japan
Reiner Franke: Department of Economics, University of Bremen, Germany

Modeling, Computing, and Mastering Complexity 2003 from Society for Computational Economics

Abstract: In this paper we investigate the closed-economy Keynes-Wicksell-Goodwin model of Chiarella and Flaschel (2000) for the case of two interacting open economies. We introduce these coupled two-country KWG dynamics on the extensive form level by means of a subdivision into nine modules describing the behavioral equations, the laws of motion and the identities or budget equations of the model. We then derive their intensive form representation and the 10 laws of motion of the model on the basis of certain simplifying assumptions. Thereafter we present the uniquely determined steady state solution of the dynamics and discuss in a mathematically informal way its stability properties, concerning asymptotic stability and loss of stability by way of super- or subcritical Hopf-bifurcations. In a final section we explore numerically a variety of situations of interacting real and financial cycles, where the steady state is locally repelling, but where the overall dynamics are bounded in an economically meaningful domain by means of a kinked money wage Phillips curve, exhibiting downward rigidity of the money-wage, coupled with upward flexibility of the usual type.

Keywords: Interacting KWG economies; stability; persistent cycles; coupled oscillators. (search for similar items in EconPapers)
JEL-codes: E12 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Interacting Two-Country Business Fluctuations (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:cplx03:02

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