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Habit Formation: Deep and Uncertain

Author

Listed:
  • Ali Choudhary

    (University of Surrey)

  • Young-Bae Kim

    (www.econ.bbk.ac.uk)

Abstract

We extend the Ravn, Schmitt-Grohe and Uribe (Review of Economic Studies, 2006) model of external deep-habits with the idea that some product varieties are more prone to habit formation than others. This s uncertainty in habit formation which affects firm's pricing. Provided that uncertainty is strong, a profound implication is that role of market frictions, such as habit formation, and its consequences for the dynamic variations in the markups can be reversed.

Suggested Citation

  • Ali Choudhary & Young-Bae Kim, 2007. "Habit Formation: Deep and Uncertain," Economics Bulletin, AccessEcon, vol. 4(5), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-06d10002
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    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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