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

Nishimura, Kazuo; Venditti, Alain; Yano, Makoto

doi:10.1007/s00199-013-0758-y

Cited by 10 publications

(12 citation statements)

References 42 publications

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“…It has been demonstrated that in a perfect foresight model with many consumers, a competitive equilibrium path behaves like an optimal growth path; see Becker (), Bewley (), Yano (), and Epstein (). Building on this property, Nishimura and Yano() and, Nishimura et al ., () have shown that a country's business cycles (i.e., two‐period cycles) can spread throughout the world once trade opens.…”

Section: Introductionmentioning

confidence: 99%

Dynamic two‐country Heckscher–Ohlin model with externality

Iwasa

Nishimura

2014

Int J of Economic Theory

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We extend a dynamic Heckscher-Ohlin model with production externality presented in recent work by Nishimura and Shimomura by assuming a consumable capital good. Following work by Bond, Iwasa, and Nishimura, we define a steady-state excess demand function and derive the locus of home and foreign capital stocks that are consistent with a steady-state equilibrium under free trade. Also, we examine the relationship between externality and local dynamics in autarky or under free trade, which includes a phase diagram analysis. Then we show that opening trade can generate expectation-driven fluctuations in a world trade market.

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Section: Introductionmentioning

confidence: 99%

Dynamic two‐country Heckscher–Ohlin model with externality

Iwasa

Nishimura

2014

Int J of Economic Theory

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“…See, for instance, Nishimura and Shimomura (2002), Nishimura (2014, 2019) and Sim and Ho (2007). 10 When international capital mobility is also introduced the results obtained tend to support the view that trade is destabilizing, as in Nishimura et al (2010Nishimura et al ( , 2014 in a two-good, two-factor model with infinitely-lived agents and Le Riche (2017) 9 Moreover, along these fluctuations we obtain a procyclical behavior of exports generated by the existence of taste for variety and intra-industry trade, in accordance with the pattern exhibited by data for developed economies. See De Bock (2010) and Engel and Wang (2011).…”

Section: Introductionmentioning

confidence: 87%

Intra-Industry Trade, Involuntary Unemployment and Macroeconomic Stability

Riche¹,

Lloyd‐Braga

Modesto

2021

SSRN Journal

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We introduce taste for variety in a one-sector model of differentiated products with productive labor externalities, considering two OLG countries, one with wage rigidity and the other with full employment. After opening the borders to capital mobility and intra-industry trade, steady state output and real wages improve in the full employment country and the saddle path stability, characterizing this country under autarky, will prevail in the globalized world if this economy is big enough. Unemployment increases in the country with wage rigidity and, for intermediate plausible values of both the current propensity to consume and of the labor externality, indeterminacy, which emerges in the rigid wage economy in autarky, will be exported to the world if this country is relatively big. Finally, we show that globalization leads to the appearance of stable deterministic cycles in activity, employment and the trade account, both through flip and Hopf bifurcations, when the world steady state is locally determinate, for empirically plausible low degrees of labor externalities. This implies that trade cycles occur in the absence of shocks to fundamentals, and even without uncertainty in expectations.

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“…The complementarity between consumption and real money balances under the CIA constraint then leads the households to contemplate a reduction in consumption. Note that, in order for the sunspot belief to be potentially self-fulling it must be the case 1 See, for example, Weder (2001), Lahiri (2001), Nishimura and Shimomura (2002a, b), Velasco (2003, 2004), Aloi and Lloyd-Braga (2010), Hu and Mino (2013), and Nishimura et al (2014). 2 One testable implication of these results is that open economies may be less volatile.…”

Section: Introductionmentioning

confidence: 99%

Money growth targeting and indeterminacy in small open economies

2018

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In a closed economy setting a cash-in-advance monetary economy under money growth targeting is prone to self-fulfilling expectations and beliefs-driven fluctuations. This paper shows that such extrinsic instability is less of a problem in a small open economy integrated in the world goods and financial markets. This is because endogenous terms-of-trade movements associated with global goods trade and crossborder capital flows and endogenous international asset price adjustments associated with global financial transaction serve as an endogenous stabilizer to reduce the likelihood of sunspot equilibria. We find that for empirically reasonable parametrization of the small open economy sunspot beliefs are unlikely to become self-fulfilled. KeywordsSelf-fulfilling expectations • Indeterminacy • Saddle-path stability • Money growth targeting • Small open economy JEL Classification E3 • E4 • F3 • F4We are grateful to two anonymous referees and the editor for very helpful comments and suggestions.

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

Cited by 10 publications

References 42 publications

Dynamic two‐country Heckscher–Ohlin model with externality

Dynamic two‐country Heckscher–Ohlin model with externality

Intra-Industry Trade, Involuntary Unemployment and Macroeconomic Stability

Money growth targeting and indeterminacy in small open economies

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