Is Openness Good for Stagnation?

Abstract

Using a symmetric multi-country model that allows for the possibility of stagnation, this paper analyzes the effects of openness on effective demand. A regime shift from autarky to free trade boosts the value of consumption utility by expanding the range of consumption goods available to people in every country. However, under stagnation, the rise in value of consumption utility lowers the time preference rate through a decline in the inflation rate, while not affecting the liquidity premium that represents the desire to hold money. Therefore, openness causes realized consumption to decrease and saving to increase. Consequently, effective demand decreases.

Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap

“…19 Figure 5 is essentially the same as Ono (1994, figures 4.1;2001, figure 5). See Matsuzaki (2003), Hashimoto (2004), Johdo (2006Johdo ( , 2008aJohdo ( , 2008b, Ono (2006), Rodríguez-Arana (2007), Johdo and Hashimoto (2009) and Ono and Ishida (2009) for the same type of stagnation. Whereas they assume that the marginal utility of money remains positive, we do not assume it; however, persistent unemployment occurs.…”

Growth, Stagnation and Status Preference

“…17 17 This result is similar to Ono (1994, 2001), who shows that an aggregate demand shortage and unemployment persistently arise if utility of money is insatiable. See also Matsuzaki (2003), Hashimoto (2004), Johdo (2006, 2008a, 2008b), Ono (2006), Rodríguez‐arana (2007) and Johdo and Hashimoto (2009) for the same type of unemployment. In their models, however, people's status preference is not taken into account. …”