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Endogenous fluctuations in an open economy with increasing returns to scale

Aloi, Marta, Dixon, Huw David and Lloyd-Braga, Teresa 2000. Endogenous fluctuations in an open economy with increasing returns to scale. Journal of Economic Dynamics and Control 24 (1) , pp. 97-125. 10.1016/S0165-1889(98)00063-3

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Abstract

In this paper we study the effects 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 fixed exchange rate, where labour is the only input and money the only asset. We find that when there are increasing returns, the open economy may display persistent equilibrium endogenous fluctuations (deterministic and stochastic) in the balance of trade and main macroeconomic aggregates.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Uncontrolled Keywords: Endogenous fluctuations; Increasing returns to scale; Small open economy
Publisher: Elsevier
ISSN: 0165-1889
Last Modified: 04 Jun 2017 04:24
URI: http://orca.cf.ac.uk/id/eprint/38233

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