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Trade and indeterminacy revisited

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  • Kazumichi Iwasa
  • Kazuo Nishimura
  • Makoto Yano

Abstract

We consider a dynamic two‐country model of trade with production externalities with an emphasis on the possibility of global indeterminacy, which means that the distribution of capital stocks in each country in the long run depends on households’ expectations. Opening trade yields expectation‐driven fluctuations. Global indeterminacy may occur around the free trade steady states even when the autarkic steady states are saddle points in both countries, and it must happen when local indeterminacy occurs around the autarkic steady states in both countries.

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  • Kazumichi Iwasa & Kazuo Nishimura & Makoto Yano, 2019. "Trade and indeterminacy revisited," International Journal of Economic Theory, The International Society for Economic Theory, vol. 15(1), pages 37-51, March.
    • Handle: RePEc:bla:ijethy:v:15:y:2019:i:1:p:37-51
    DOI: 10.1111/ijet.12205
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    Cited by:

    1. Le Riche, Antoine & Lloyd-Braga, Teresa & Modesto, Leonor, 2022. "Intra-industry trade, involuntary unemployment and macroeconomic stability," Journal of Mathematical Economics, Elsevier, vol. 99(C).

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