Advanced Search
MyIDEAS: Login

Business cycle implications of internal consumption habit for new Keynesian models

Contents:

Author Info

  • Takashi Kano
  • James M. Nason

Abstract

We study the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of NKDSGE models to match the spectra of output and consumption growth. Nonetheless, the fit of NKDSGE models with internal consumption habit is susceptible to the sources of nominal rigidity, to spectra identified by permanent productivity shocks, to the choice of monetary policy rule, and to the frequencies used for evaluation. These vulnerabilities indicate that the specification of NKDSGE models is fragile.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2012/wp12-30.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 12-30.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedpwp:12-30

Contact details of provider:
Postal: 10 Independence Mall, Philadelphia, PA 19106-1574
Web page: http://www.philadelphiafed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.phil.frb.org/econ/wps/index.html

Related research

Keywords: Consumption (Economics) ; Keynesian economics;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Otrok, C. & Ravikumar, B. & Whiteman, C., 1998. "Habit Formation: A Resolution of the Equity Premium Puzzle?," Working Papers 98-04, University of Iowa, Department of Economics.
  2. Sundaresan, Suresh M, 1989. "Intertemporally Dependent Preferences and the Volatility of Consumption and Wealth," Review of Financial Studies, Society for Financial Studies, vol. 2(1), pages 73-89.
  3. Pablo A. Guerron, 2007. "What You Match Does Matter: The Effects of Data on DSGE Estimation," Working Paper Series 012, North Carolina State University, Department of Economics.
  4. Kareen Rozen, 2010. "Foundations of Intrinsic Habit Formation," Econometrica, Econometric Society, vol. 78(4), pages 1341-1373, 07.
  5. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  6. Ramey, Valerie A & Francis, Neville, 2002. "Is The Technology-Driven Real Business Cycle Hypothesis Dead? Shocks and Aggregate Fluctuations Revisted," University of California at San Diego, Economics Working Paper Series qt6x80k3nx, Department of Economics, UC San Diego.
  7. Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1151-1166, September.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  9. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
  10. Francis X. Diebold & Lee E. Ohanian & Jeremy Berkowitz, 1997. "Dynamic equilibrium economies: a framework for comparing models and data," Working Papers 97-7, Federal Reserve Bank of Philadelphia.
  11. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2002. "Habit Formation and the Persistence of Monetary Shocks," Cahiers de recherche 2002-08, Universite de Montreal, Departement de sciences economiques.
  12. Peter N. Ireland, 2000. "Sticky-Price Models of the Business Cycle: Specification and Stability," NBER Working Papers 7511, National Bureau of Economic Research, Inc.
  13. Richard Dennis, 2008. "Consumption-habits in a new Keynesian business cycle model," Working Paper Series 2008-35, Federal Reserve Bank of San Francisco.
  14. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
  15. Hirotugu Akaike, 1969. "Power spectrum estimation through autoregressive model fitting," Annals of the Institute of Statistical Mathematics, Springer, vol. 21(1), pages 407-419, December.
  16. James M. Nason & John H. Rogers, 2003. "The present-value model of the current account has been rejected: Round up the usual suspects," Working Paper 2003-7, Federal Reserve Bank of Atlanta.
  17. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
  18. John Geweke, 1998. "Using simulation methods for Bayesian econometric models: inference, development, and communication," Staff Report 249, Federal Reserve Bank of Minneapolis.
  19. Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 199822, Rutgers University, Department of Economics.
  20. Pollak, Robert A., 1976. "Habit formation and long-run utility functions," Journal of Economic Theory, Elsevier, vol. 13(2), pages 272-297, October.
  21. Takashi Kano, 2008. "Habit Formation and the Present-Value Model of the Current Account: Yet Another Suspect," CIRJE F-Series CIRJE-F-572, CIRJE, Faculty of Economics, University of Tokyo.
  22. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series WP-99-14, Federal Reserve Bank of Chicago.
  23. William McCausland, 1999. "Using the BACC Software for Bayesian Inference," Computing in Economics and Finance 1999 833, Society for Computational Economics.
  24. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
  25. Dupor, Bill & Han, Jing & Tsai, Yi-Chan, 2009. "What do technology shocks tell us about the New Keynesian paradigm?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 560-569, May.
  26. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
  27. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
  28. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  29. Nason, James M & Cogley, Timothy, 1994. "Testing the Implications of Long-Run Neutrality for Monetary Business Cycle Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S37-70, Suppl. De.
  30. George J. Hall, 1994. "Overtime, effort and the propagation of business cycle shocks," Working Paper Series, Macroeconomic Issues 94-25, Federal Reserve Bank of Chicago.
  31. Lindé, Jesper, 2001. "Estimating New-Keynesian Phillips Curves: A Full Information Maximum Likelihood Approach," Working Paper Series 129, Sveriges Riksbank (Central Bank of Sweden), revised 30 Apr 2001.
  32. Eichenbaum, Martin & Hansen, Lars Peter, 1990. "Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 53-69, January.
  33. Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, vol. 14(04), pages 483-509, August.
  34. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
  35. DeJong, David N & Ingram, Beth Fisher & Whiteman, Charles H, 1996. "A Bayesian Approach to Calibration," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 1-9, January.
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 in new window

Cited by:
  1. Pablo A Guerron-Quintana & James M Nason, 2012. "Bayesian Estimation of DSGE Models," CAMA Working Papers 2012-10, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Eric Leeper & Todd Walker, 2011. "Information Flows and News Driven Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 55-71, January.
  3. Juliana Dutra Araujo & Grace Bin Li & Marcos Poplawski-Ribeiro & Luis-Felipe Zanna, 2013. "Current Account Norms in Natural Resource Rich and Capital Scarce Economies," IMF Working Papers 13/80, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:12-30. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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