Abstract
This paper investigates the interlinkage in the business cycles of large-country economies in a free-trade equilibrium. We consider a two-country, two-good, two-factor general equilibrium model with Cobb-Douglas technologies and linear preferences. We also assume decreasing returns to scale in the consumption good sector. We first identify the determinants of each country’s global accumulation pattern in autarky equilibrium, and secondly we show how a country’s business cycles may spread throughout the world once trade opens. We thus give capital intensity conditions for local and global stability of competitive equilibrium paths.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Becker, R. (1980) “On the Long-Run Steady-State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households”, Quarterly Journal of Economics, Vol. 95, pp. 375–382.
Benhabib, J. and K. Nishimura (1985) “Competitive Equilibrium Cycles”, Journal of Economic Theory, Vol. 35, pp. 284–306.
Bewley, T. (1982) “An Integration of Equilibrium Theory and Turnpike Theory”, Journal of Mathematical Economics, Vol. 10, pp. 233–267.
Boldrin, M. and L. Montrucchio (1986) “On the Indeterminacy of Capital Accumulation Paths”, Journal of Economic Theory, Vol. 40, pp. 26–39.
Epstein, L. (1987) “A Simple Dynamic General Equilibrium Model”, Journal of Economic Theory, Vol. 41, pp. 68–95.
Honryo, T. and M. Yano (2006) “Short-Run Trade Surplus Creation in a Two-Sector Setting,” Japanese Economic Review, Vol. 57, No. 4, pp. 476–482.
Nishimura, K. and K. Shimomura (2002) “Trade and Indeterminacy in a Dynamic General Equilibrium Model”, Journal of Economic Theory, Vol. 105, pp. 244–260.
-, - and P. Wang (2006) “Duality with Sector-Specific Externalities Under Social Constant Returns,” Japanese Economic Review, Vol. 57, No. 4, pp. 467–475.
-, and M. Yano (1993) “Interlinkage in the Endogenous Real Business Cycles of International Economies”, Economic Theory, Vol. 3, pp. 151–168.
Yano, M. (1983) “Competitive Equilibria on Turnpikes in a McKenzie Economy, I: A Neighborhood Turnpike Theorem”, International Economic Review, Vol. 25, pp. 695–717.
- (1984): “The Turnpike of Dynamic General Equilibrium Paths and its Insensitivity to Initial Conditions”, Journal of Mathematical Economics, Vol. 13, pp. 235–254.
Author information
Authors and Affiliations
Additional information
We would like to thank an anonymous referee for useful comments and suggestions.
Rights and permissions
About this article
Cite this article
Nishimura, K., Venditti, A. & Yano, M. Endogenous Fluctuations in Two-Country Models. JER 57, 516–532 (2006). https://doi.org/10.1111/j.1468-5876.2006.00401.x
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1111/j.1468-5876.2006.00401.x