Indeterminacy in a dynamic two-country model

The purpose of this paper is to show that indeterminacy can arise in a simple competitive two-country dynamic model of international trade, free of externalities, imperfect competition, and government intervention. This seemingly surprising result is based on an assumption that there is no international credit market. As will be shown later, the assumption implies that dynamic equilibrium paths of our two-country, therefore heterogeneous consumer, model are not generally Pareto-optimal.