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Journal of Economic Integration 2008 March;23(1) :24-41.
DOI: https://doi.org/10.11130/jei.2008.23.1.24
Is Openness Good for Stagnation?
Wataru Johdo 
Tezukayama University
Copyright ©2008 Journal of Economic Integration
ABSTRACT

Using a symmetric multi-country model that allows for the possibility of stagnation, this paper analyzes the effects of openness on effective demand. A regime shift from autarky to free trade boosts the value of consumption utility by expanding the range of consumption goods available to people in every country. However, under stagnation, the rise in value of consumption utility lowers the time preference rate through a decline in the inflation rate, while not affecting the liquidity premium that represents the desire to hold money. Therefore, openness causes realized consumption to decrease and saving to increase. Consequently, effective demand decreases.

JEL classification: E24, F15, L11, L13

Keywords: Autarky | Openness | Effective Demand | Stagnation
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