IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v113y2011i2p116-119.html
   My bibliography  Save this article

Multiplicative habit formation and consumption: A note

Author

Listed:
  • Corrado, Luisa
  • Holly, Sean

Abstract

A multiplicative form of the habit term in the utility function has some undesirable properties if the habit function is itself still additive (Wendner, 2003). A geometric form for the way the stock of habit accumulates can resolve these shortcomings.

Suggested Citation

  • Corrado, Luisa & Holly, Sean, 2011. "Multiplicative habit formation and consumption: A note," Economics Letters, Elsevier, vol. 113(2), pages 116-119.
    • Handle: RePEc:eee:ecolet:v:113:y:2011:i:2:p:116-119
    DOI: 10.1016/j.econlet.2011.06.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176511002412
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2011.06.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    2. Amato, Jeffery D. & Laubach, Thomas, 2004. "Implications of habit formation for optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 305-325, March.
    3. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
    4. John Muellbauer, 1988. "Habits, Rationality and Myopia in the Life Cycle Consumption Function," Annals of Economics and Statistics, GENES, issue 9, pages 47-70.
    5. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    6. Kareen Rozen, 2010. "Foundations of Intrinsic Habit Formation," Econometrica, Econometric Society, vol. 78(4), pages 1341-1373, July.
    7. Kozicki, Sharon & Tinsley, P. A., 2002. "Dynamic specifications in optimizing trend-deviation macro models," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1585-1611, August.
    8. Wendner, Ronald, 2003. "Do habits raise consumption growth?," Research in Economics, Elsevier, vol. 57(2), pages 151-163, June.
    9. Carroll, Christopher D., 2000. "Solving consumption models with multiplicative habits," Economics Letters, Elsevier, vol. 68(1), pages 67-77, July.
    10. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Holger Kraft & Claus Munk & Frank Thomas Seifried & Sebastian Wagner, 2017. "Consumption habits and humps," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 305-330, August.
    2. ZHANG, Wei-Bin, 2013. "Habit Formation And Preference Change In A Twosector Growth Model With Elastic Labor Supply," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(2), pages 3-20, May.
    3. Corrado, L. & Holly, S. & Raissi, M., 2012. "Persistent Habits, optimal Monetary Policy Inertia and Interest Rate Smoothing," Cambridge Working Papers in Economics 1247, Faculty of Economics, University of Cambridge.
    4. Zhang Wei-Bin, 2013. "Habit Formation and Preference Change with Capital and Renewable Resources," Business Systems Research, Sciendo, vol. 4(2), pages 108-125, December.
    5. Li, Tongtong & Wang, Shibo & Yang, Jinqiang, 2021. "Robust consumption and portfolio choices with habit formation," Economic Modelling, Elsevier, vol. 98(C), pages 227-246.
    6. Wei-Bin Zhang, 2013. "Dynamic Interactions among Growth, Environmental Change, Habit Formation, and Preference Change," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 3(1), pages 3-25, December.
    7. Wei-Bin ZHANG, 2012. "Habits, Saving Propensity, And Economic Growth," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(2), pages 3-15.
    8. Marrero, Gustavo A. & Novales, Alfonso, 2011. "Growth, income taxes and consumption aspirations," Economics Letters, Elsevier, vol. 113(3), pages 221-224.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23, April.
    2. Luisa Corrado & Sean Holly, 2004. "Habit Formation and Interest Rate Smoothing," CDMA Conference Paper Series 0404, Centre for Dynamic Macroeconomic Analysis.
    3. Jim Malley & Hassan Molana, 2002. "The Life-Cycle-Permanent-Income Model: A Reinterpretation and Supporting Evidence," Working Papers 2002_17, Business School - Economics, University of Glasgow.
    4. Morhaim, Lisa & Ulus, Ayşegül Yıldız, 2023. "On history-dependent optimization models: A unified framework to analyze models with habits, satiation and optimal growth," Journal of Mathematical Economics, Elsevier, vol. 105(C).
    5. Wei-Bin Zhang, 2013. "Dynamic Interactions among Growth, Environmental Change, Habit Formation, and Preference Change," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 3(1), pages 3-25, December.
    6. Holger Kraft & Claus Munk & Frank Thomas Seifried & Sebastian Wagner, 2017. "Consumption habits and humps," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 305-330, August.
    7. Jim Malley & Hassan Molana, 2003. "The Life-Cycle-Permanent- Income Hypothesis: A Reinterpretation and Supporting Evidence," Dundee Discussion Papers in Economics 138, Economic Studies, University of Dundee.
    8. Wei-Bin ZHANG, 2012. "Habits, Saving Propensity, And Economic Growth," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(2), pages 3-15.
    9. M Boschi & S d'Addona & A Goenka, 2012. "Testing external habits in an asset pricing model," CAMA Working Papers 2012-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Santiago Budría, 2008. "An Exploration of Asset Returns in a Production Economy with Relative Habits," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(3), pages 261-274, September.
    11. van den Bijgaart, I.M., 2017. "Too slow a change? Deep habits, consumption shifts and transitory tax," Working Papers in Economics 701, University of Gothenburg, Department of Economics.
    12. Jacobs Martin, 2016. "Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences," Review of Economics, De Gruyter, vol. 67(2), pages 121-183, August.
    13. Richard Dennis, 2009. "Consumption Habits in a New Keynesian Business Cycle Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 1015-1030, August.
    14. Chan, Ying Tung, 2020. "Optimal emissions tax rates under habit formation and social comparisons," Energy Policy, Elsevier, vol. 146(C).
    15. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    16. Laszlo Goerke, 2020. "An Efficiency-Wage Model with Habit Concerns about Wages," CESifo Working Paper Series 8428, CESifo.
    17. Laszlo Goerke, 2021. "Habit formation and wage determination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 61-76, January.
    18. Bossi, Luca & Gomis-Porqueras, Pere, 2009. "Consequences Of Modeling Habit Persistence," Macroeconomic Dynamics, Cambridge University Press, vol. 13(3), pages 349-365, June.
    19. Li, Tongtong & Wang, Shibo & Yang, Jinqiang, 2021. "Robust consumption and portfolio choices with habit formation," Economic Modelling, Elsevier, vol. 98(C), pages 227-246.
    20. Chang, Ming-Jen & Chang, Juin-Jen & Shieh, Jhy-Yuan, 2014. "Keeping up with the Joneses and exchange rate volatility in a Redux model," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 569-584.

    More about this item

    Keywords

    Habit formation; Multiplicative habits; Consumption;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:113:y:2011:i:2:p:116-119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.