International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition
AbstractThis paper presents a simple diagrammatic analysis of an open economy's external adjustment process under habit-forming individual preferences. The exposition focuses on the consumption side and aims to make transparent the linkage among wealth, past consumption experience, and current consumption. An extension of the standard representative-agent model to a growing economy of overlapping generations completes the paper. Under habit formation an agent's consumption exhibits a form of hysteresis, in that his current consumption depends on his past consumption experience as well as initial assets. In the overlapping-generations model aggregate hysteresis disappears in the long run. Copyright 1992 by Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 1 (1992)
Issue (Month): 1 (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
Other versions of this item:
- Maurice Obstfeld, 1992. "International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition," NBER Working Papers 4094, National Bureau of Economic Research, Inc.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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