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

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
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Submitted on : Thursday, February 9, 2017 - 6:24:19 PM
Last modification on : Wednesday, August 5, 2020 - 3:16:56 AM

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Kazuo Nishimura, Alain Venditti, Makoto Yano. Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model. Economic Theory, 2014, 55 (2), pp.357--392. ⟨10.1007/s00199-013-0758-y⟩. ⟨hal-01463927⟩

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