Year: 1991
Type: article
Abstract: In models with external economies, there are often two or more long-run equilibria. Which equilibrium is chosen? Much of the literature presumes that “history” sets initial conditions that determine the outcome, but an alternative view stresses the role of “expectations,” i.e., of self-fulfilling prophecy. This paper uses a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium.
DOI: 10.2307/2937950
Author: Paul Krugman
Institution: Massachusetts Institute of Technology
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2122403554