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Trade and indeterminacy revisited
Author(s) -
Iwasa Kazumichi,
Nishimura Kazuo,
Yano Makoto
Publication year - 2019
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12205
Subject(s) - indeterminacy (philosophy) , economics , capital (architecture) , externality , saddle , capital accumulation , production (economics) , neoclassical economics , keynesian economics , microeconomics , physics , mathematics , profit (economics) , mathematical optimization , archaeology , quantum mechanics , history
We consider a dynamic two‐country model of trade with production externalities with an emphasis on the possibility of global indeterminacy, which means that the distribution of capital stocks in each country in the long run depends on households’ expectations. Opening trade yields expectation‐driven fluctuations. Global indeterminacy may occur around the free trade steady states even when the autarkic steady states are saddle points in both countries, and it must happen when local indeterminacy occurs around the autarkic steady states in both countries.