International asset market, nonconvergence, and endogenous fluctuations

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9 Citations (Scopus)

Abstract

We develop an overlapping generations model with re-tradeable paper assets and capital accumulation to analyze the interaction between the real economy and an international asset market. The world consists of two homogeneous countries, which differ only in their initial levels of capital. Consumers who live for two periods transfer wealth over time and across countries by holding international mutual funds which pay stochastic dividends. The optimal portfolio decisions of consumers do not necessarily induce convergence of incomes between the two countries. Moreover, interaction through the asset market induces endogenous fluctuation of capital flows between the rich and the poor country.

Original languageEnglish
Pages (from-to)310-334
Number of pages25
JournalJournal of Economic Theory
Volume139
Issue number1
DOIs
Publication statusPublished - 2008 Mar
Externally publishedYes

Keywords

  • Endogenous cycles
  • Inequality of nations
  • International asset market
  • Two-country model

ASJC Scopus subject areas

  • Economics and Econometrics

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