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Growth and labor supply in the presence of habit formation in consumption

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  • Joao Ricardo Faria

    () (School of Social Sciences, University of Texas at Dallas)

Abstract

This paper examines a model with habit formation in consumption. The model leads to higher equilibrium values in consumption, output, capital accumulation and labor supply than the neoclassical growth model with elastic labor supply. Comparative static analysis shows that an increase in the importance of consumption in the recent past in habit formation is associated with a decrease in growth and labor supply. On the other hand, an increase of the importance of habit stock relatively to present consumption, is found to stimulate growth and labor supply.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 4 (2002)
Issue (Month): 5 ()
Pages: 1-5
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Handle: RePEc:ebl:ecbull:v:4:y:2002:i:5:p:1-5

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Keywords: Consumption behavior;

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  1. Christopher D. Carroll & Jody Overland & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  2. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
  3. Dockner, Engelbert J & Feichtinger, Gustav, 1993. "Cyclical Consumption Patterns and Rational Addiction," American Economic Review, American Economic Association, vol. 83(1), pages 256-63, March.
  4. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June.
  5. Boyer, M., 1976. "A Habit Forming Optimal Grouwth Model," Cahiers de recherche 7612, Universite de Montreal, Departement de sciences economiques.
  6. Alessie, Rob & Lusardi, Annamaria, 1997. "Consumption, saving and habit formation," Economics Letters, Elsevier, vol. 55(1), pages 103-108, August.
  7. Faria, Joao Ricardo, 2001. "Habit formation in a monetary growth model," Economics Letters, Elsevier, vol. 73(1), pages 51-55, October.
  8. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
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