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Endogenous fluctuations in an open economy with increasing returns to scale

โœ Scribed by Marta Aloi; Huw D. Dixon; Teresa Lloyd-Braga

Publisher
Elsevier Science
Year
2000
Tongue
English
Weight
272 KB
Volume
24
Category
Article
ISSN
0165-1889

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โœฆ Synopsis

In this paper we study the e!ects of opening an economy, with increasing returns in the production of nontraded goods, on the existence of multiple Pareto-ranked stationary equilibria, local indeterminacy and bifurcations. We consider a standard overlapping generation model of a small open economy, with a "xed exchange rate, where labour is the only input and money the only asset. We "nd that when there are increasing returns, the open economy may display persistent equilibrium endogenous #uctuations (deterministic and stochastic) in the balance of trade and main macroeconomic aggregates.

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