Interacting Two-Country Business Fluctuations

U. of Technology, Sydney Finance and Economics Working Paper No. 128

43 Pages Posted: 26 Jan 2006

See all articles by Toichiro Asada

Toichiro Asada

Chuo University

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics

Reiner Franke

Vienna University of Technology

Date Written: May 2003

Abstract

In this paper we investigate the closed-economy Keynes-Wicksell-Goodwin model of Chiarella and Flaschel (2000) for the case of two interacting open economies. We introduce these coupled two-country KWG dynamics on the extensive form level by means of a subdivision into nine modules describing the behavioral equations, the laws of motion and the identities or budget equations of the model. We then derive their intensive form representation and the 10 laws of motions of the model on the basis of certain simplifying asumptions. Thereafter we present the uniquely determined steady state solution of the dynamics and discuss in a mathematically informal way its stability properties, concerning asymptotic stability and loss of stability by way of super- or subcritical Hopf-bifurcations. In a final section we explore numerically a variety of situations of interacting real and financial cycles, where the steady state is locally repelling, but where the overall dynamics are bounded in an economically meaningful domain by means of a kinked money wage Phillips curve, exhibiting downward rigidity of the money-wage, coupled with upward flexibility of the usual type.

Keywords: Interacting KWG economies, stability, persistent cycles, coupled oscillators

JEL Classification: E12, E32

Suggested Citation

Asada, Toichiro and Chiarella, Carl and Flaschel, Peter and Franke, Reiner, Interacting Two-Country Business Fluctuations (May 2003). U. of Technology, Sydney Finance and Economics Working Paper No. 128, Available at SSRN: https://ssrn.com/abstract=878248 or http://dx.doi.org/10.2139/ssrn.878248

Toichiro Asada

Chuo University ( email )

2nd floor Blg 4 Tampa Campus
742-1 Higashinakano, Hachioji
Tokyo 192-03
Japan

Carl Chiarella (Contact Author)

University of Technology, Sydney - UTS Business School, Finance Discipline Group ( email )

PO Box 123
Broadway, NSW 2007
Australia
+61 2 9514 7719 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://www.business.uts.edu.au/finance/

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

Reiner Franke

Vienna University of Technology ( email )

Wien 1040
Austria

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