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Habit Persistence and Beliefs Based Liquidity Effect

Author

Listed:
  • Patrick Fève

    (University of Toulouse (GREMAQ-CNRS and IDEI))

  • Fabrice Collard

    (University of Toulouse (GREMAQ-CNRS and IDEI))

  • Stéphane Auray

    (University of Nantes, LEN-C3E and GREMAQ)

Abstract

The paper introduces habit persistence in consumption decisions in an infinitely-lived agents monetary model with a cash-in-advance constraint. We show that strong enough habit persistence yields indeterminate equilibria. However, real indeterminacy is not per se sufficient to obtain a liquidity effect. The form of the beliefs matters.

Suggested Citation

  • Patrick Fève & Fabrice Collard & Stéphane Auray, 2002. "Habit Persistence and Beliefs Based Liquidity Effect," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-02e40002
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    File URL: http://www.accessecon.com/pubs/EB/2002/Volume5/EB-02E40002A.pdf
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    Cited by:

    1. Michael Gail, 2003. "Habit Persistence in Consumption in a Sticky Price Model of the Business Cycle," Volkswirtschaftliche Diskussionsbeiträge 111-03, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised Jul 2004.

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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