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

Kazuo Nishimura, Alain Venditti and Makoto Yano

Economic Theory, 2014, vol. 55, issue 2, 357-392

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: Perfect foresight dynamic general equilibrium model; International trade; Aggregate instability; Endogenous fluctuations; Nonlinear preferences; C62; E32; F11; F43; O41 (search for similar items in EconPapers)
Date: 2014
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Related works:
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)
Working Paper: Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model (2013)
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DOI: 10.1007/s00199-013-0758-y

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