Trade structure and belief-driven fluctuations in a global economy

Yunfang Hu, Kazuo Mino

    Research output: Contribution to journalArticlepeer-review

    10 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 1

    Keywords

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

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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