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Internal vs. External Habit Formation in a Growing Economy with Overlapping Generations

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  • Masako Ikefuji
  • Kazuo Mino

Abstract

This paper explores the roles of internal and external habit formation in a simple model of endogenous growth with overlapping generations. Unlike the representative agent settings in which the distinction between internal and external habits may not yield significant qualitative differences in working of the model economy, we show that the internal and external habit persistence in overlapping generations economies may have qualitatively different effects on the steady-state characterization as well as on the dynamic behavior of the economy. We also confirm that in an overlapping generations framework, whether the habits in the utility function takes subtractive or multiplicative forms may be critical both for long-run growth and for transitional dynamics.

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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0750.

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Date of creation: Aug 2009
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Handle: RePEc:dpr:wpaper:0750

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  1. Uribe, Martin, 2002. "The price-consumption puzzle of currency pegs," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 533-569, April.
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  3. Grishchenko, Olesya V., 2010. "Internal vs. external habit formation: The relative importance for asset pricing," Journal of Economics and Business, Elsevier, vol. 62(3), pages 176-194, May.
  4. repec:ebl:ecbull:v:4:y:2002:i:7:p:1-10 is not listed on IDEAS
  5. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
  6. Amartya Lahiri & Mikko Puhakka, 1996. "Habit Persistence in Overlapping Generations Economies Under Pure Exchange," UCLA Economics Working Papers 754, UCLA Department of Economics.
  7. Mino, Kazuo, 2006. "Consumption Externalities and Capital Accumulation in an Overlapping Generations Economy," MPRA Paper 17016, University Library of Munich, Germany.
  8. Kazuo Mino, 2007. "Growth and Bubbles with Consumption Externalities," Discussion Papers in Economics and Business 07-07, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  9. Gómez, Manuel A., 2008. "Convergence speed in the Ak endogenous growth model with habit formation," Economics Letters, Elsevier, vol. 100(1), pages 16-21, July.
  10. Hiraguchi, Ryoji, 2008. "The overlapping generations model with habit formation: A comment," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 4016-4017, December.
  11. Wendner, Ronald, 2003. "Do habits raise consumption growth?," Research in Economics, Elsevier, vol. 57(2), pages 151-163, June.
  12. Ronald Wendner, 2002. "Capital Accumulation and Habit Formation," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-10.
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Cited by:
  1. Daimer Higuita López, 2012. "Interiorización de las manifestaciones culturales en los miembros de la organización," REVISTA FACULTAD DE CIENCIAS ECONÓMICAS, UNIVERSIDAD MILITAR NUEVA GRANADA.

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