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

Author

Listed:
  • Kazuo Nishimura

    (RIEB, Kobe University - Kobe University, KIER, Kyoto University - Kyoto University)

  • Alain Venditti

    (EDHEC Business School - Département Comptabilité, Droit, Finance et Economie, GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Makoto Yano

    (Institute of Economic Research, Kyoto University - Kyoto University)

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

Suggested Citation

  • Kazuo Nishimura & Alain Venditti & Makoto Yano, 2014. "Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model," Post-Print hal-01463927, HAL.
    • Handle: RePEc:hal:journl:hal-01463927
    DOI: 10.1007/s00199-013-0758-y
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    References listed on IDEAS

    as
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    Cited by:

    1. Kunihiko Konishi, 2015. "Growth Cycles in a Two-country Model of Innovation," Discussion Papers in Economics and Business 15-07, Osaka University, Graduate School of Economics.
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    3. Antoine Le Riche, 2017. "Macroeconomic volatility and trade in OLG economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(4), pages 401-425, December.
    4. 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).
    5. Yuichi Furukawa, 2015. "Leapfrogging cycles in international competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 401-433, June.

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    More about this item

    Keywords

    Aggregate instability; Aggregate instability; C62; E32; Economics general; Economic Theory; End; Endogenous fluctuations; F11; F43; Game Theory; Economics; Social and Behav. Sciences; International trade; Nonlinear preferences; O41; Perfect foresight dynamic general equilibrium model;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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