Trade structure and belief-driven fluctuations in a global economy

Yunfang Hu, Kazuo Mino

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

This paper constructs a dynamic two-country model with country-specific production externalities and inspects the presence of equilibrium indeterminacy under alternative trade structures. It is shown that the presence of belief-driven economic fluctuations caused by equilibrium indeterminacy is closely related to the specified trade structure. If investment goods are not internationally traded and international lending and borrowing are allowed, then indeterminacy arises in a wider set of parameter space than in the corresponding closed economy. By contrast, either if both consumption and investment goods are traded in the absence of international lending and borrowing or if only investment goods are traded with financial transactions, then the indeterminacy conditions are the same as those for the closed economy counterpart.

Original languageEnglish
Pages (from-to)414-424
Number of pages11
JournalJournal of International Economics
Volume90
Issue number2
DOIs
Publication statusPublished - 2013 Jul
Externally publishedYes

Keywords

  • Equilibrium indeterminacy
  • Non-traded goods
  • Social constant returns
  • Two-country model

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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