Stationary Temporary Equilibrium in a Model of Trade and Optimal Accumulation

This paper is an attempt to analyze certain intertemporal aspects of the movement of prices in the world market in a general equilibrium framework. A model of a competitive economy consisting of several "small" countries engaged in consumption, production and trade is developed here. The intertemporal allocation decisions are derived from solving dynamic optimization involving a constrained maximization of a discounted sum of one period utilities from consumption over an infinite horizon. Following Hicks, one way to look at the evolution of an economic system is to view it as a succession of temporary or short-run competitive equilibria. The main focus of the paper is in providing the existence of temporary equilibrium. A set of sufficient conditions are provided for the equilibrium to be unique and stationary.