International Transmission of Bubble Crashes in a Two-Country Overlapping Generations

Lise Clain-Chamosset-Yvrard and Takashi Kamihigashi

No DP2015-43, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We study the international transmission of bubble crashes by analyzing stationary sunspot equilibria in a two-country overlapping generations exchange economy with stochastic bubbles. We consider two cases of sunspot shocks. In the first case, we assume that only the foreign country receives a sunspot shock, while in the second, we assume that both countries independently receive sunspot shocks. In the first case, a bubble crash in the foreign country is always accompanied by a bubble crash in the home country. In the second case, a bubble crash in the foreign country can have a positive or negative effect on the home bubble. We also show that there exists a unique locally isolated stationary sunspot equilibrium, and that it is locally unstable.

Keywords: International transmission; Stochastic bubbles; Stationary sunspot equilibria; Financial integration (search for similar items in EconPapers)
JEL-codes: D91 E44 F30 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-12
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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