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Habit Formation: Deep and Uncertain

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Author Info
Ali Choudhary () (University of Surrey)
Young-Bae Kim () (www.econ.bbk.ac.uk)

Additional information is available for the following registered author(s):

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 creates 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.

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File URL: http://economicsbulletin.vanderbilt.edu/2007/volume4/EB-06D10002A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 4 (2007)
Issue (Month): 5 ()
Pages: 1-7
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Handle: RePEc:ebl:ecbull:v:4:y:2007:i:5:p:1-7

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Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
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Related research
Keywords: External Habit Formation; Uncertainty; Markups;

Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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