Macroeconomic Interdependence between a Stagnant and a Fully Employed Country

28 Pages Posted: 5 Nov 2018

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: December 2018

Abstract

This paper presents a two‐country two‐commodity dynamic model where one country achieves full employment and the other suffers from secular stagnation of aggregate demand. Own and spillover effects of changes in preference, productivity and policy parameters are examined. Parameter changes that improve the stagnant country's current account, such as a reduction in government purchases, a decrease in foreign aid and an improvement in productivity, raise the relative price of the home commodity. Consequently, home employment shrinks, deflation worsens and consumption decreases. The terms of trade for the full‐employment country deteriorate. Thus, income and consumption decrease in both countries.

Suggested Citation

Ono, Yoshiyasu, Macroeconomic Interdependence between a Stagnant and a Fully Employed Country (December 2018). The Japanese Economic Review, Vol. 69, Issue 4, pp. 450-477, 2018. Available at SSRN: https://ssrn.com/abstract=3277601 or http://dx.doi.org/10.1111/jere.12156

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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