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Keeping up with the Ageing Joneses

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Author Info
Fisher, Walter H. (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)
Heijdra, Ben J. (Department of Economics, University of Groningen, Groningen, The Netherlands)

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Abstract

In this paper we consider the implications of relative consumption externalities in the Blanchard-Yaari overlapping generations framework. Unlike most of the macroeconomic literature that studies this question, the differences between agents, and, thus, in their relative position, persist in equilibrium. We show in our fixed employment model that consumption externalities lower consumption and the capital stock in long-run equilibrium, a result in sharp contrast to the recent findings of Liu and Turnovsky (2005). In addition, we solve for the intertemporal path of the economy to investigate its response to demographic shocks, specifically, to permanent changes in the birth and death rates.

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File URL: http://www.ihs.ac.at/publications/eco/es-204.pdf
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 204.

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Length: 26 pages
Date of creation: Mar 2007
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Handle: RePEc:ihs:ihsesp:204

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Related research
Keywords: Relative consumption; Overlapping generations; Demographic shocks;

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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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.:
  1. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March. [Downloadable!]
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    Other versions:
  3. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December. [Downloadable!] (restricted)
  4. Lars Ljungqvist & Harald Uhlig, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June. [Downloadable!] (restricted)
  5. Heijdra, Ben J. & Ligthart, Jenny E., 2006. "The Macroeconomic Dynamics Of Demographic Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 349-370, June. [Downloadable!]
    Other versions:
  6. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
    Other versions:
  7. Willem H. Buiter, 1987. "Fiscal policy in open, interdependent economies," NBER Working Papers 1429, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Corneo, Giacomo & Jeanne, Olivier, 2001. " Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(2), pages 283-93, June. [Downloadable!] (restricted)
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  10. Michael Rauscher, 1997. "Conspicuous consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 66(1), pages 35-42, February. [Downloadable!] (restricted)
  11. Stephen J Turnovsky & Goncalo Monteiro, . "Consumption Externalities, Production Externalities and Efficient Capital Accumulation under Time Non-separable Preferences," Discussion Papers 05/08, Department of Economics, University of York. [Downloadable!]
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  12. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February. [Downloadable!] (restricted)
    Other versions:
  13. 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.
    Other versions:
  14. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June. [Downloadable!] (restricted)
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  16. Calvo, Guillermo A & Obstfeld, Maurice, 1988. "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes," Econometrica, Econometric Society, vol. 56(2), pages 411-32, March. [Downloadable!] (restricted)
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  20. Andrew B. Abel, 2005. "Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 21-42, 01. [Downloadable!] (restricted)
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  21. Ben J. Heijdra & Ward E. Romp, 2006. "Ageing and Growth in the Small Open Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  22. Fisher, Walter H. & Hof, Franz X., 2005. "The Quest for Status and Endogenous Labor Supply. The Relative Wealth Framework," Economics Series 181, Institute for Advanced Studies. [Downloadable!]
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  23. Bettendorf, Leon J.H. & Heijdra, Ben J., 2006. "Population ageing and pension reform in a small open economy with non-traded goods," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2389-2424, December. [Downloadable!] (restricted)
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  24. Walter H. Fisher, 2004. "Status Preference, Wealth and Dynamics in the Open Economy," German Economic Review, Blackwell Publishing, vol. 5(3), pages 335-355, 08. [Downloadable!] (restricted)
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  25. Ryder, Harl E, Jr & Heal, Geoffrey M, 1973. "Optimum Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Blackwell Publishing, vol. 40(1), pages 1-33, January. [Downloadable!] (restricted)
  26. Ben J. Heijdra & Ward E. Romp, 2007. "Retirement, Pensions, and Ageing," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  27. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March. [Downloadable!] (restricted)
  28. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 47-80, 03. [Downloadable!]
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  29. Frank, Robert H, 1997. "The Frame of Reference as a Public Good," Economic Journal, Royal Economic Society, vol. 107(445), pages 1832-47, November. [Downloadable!] (restricted)
  30. Wen-Fang Liu & Stephen Turnovsky, 2003. "Consumption Externalities, Production Externalities, and the Accumulation of Capital," Working Papers UWEC-2002-13-P, University of Washington, Department of Economics, revised Nov 2003. [Downloadable!]
  31. Bovenberg, A.L. & Heijdra, B.J., 1998. "Environmental abatement and intergenerational distribution," Discussion Paper 100, Tilburg University, Center for Economic Research. [Downloadable!]
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  32. Van Long, Ngo & Shimomura, Koji, 2004. "Relative wealth, status-seeking, and catching-up," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 529-542, April. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2009. "Envy And Inequality," Departmental Working Papers 2009-03, McGill University, Department of Economics. [Downloadable!]
  2. Fisher, Walter H. & Heijdra, Ben J., 2008. "Growth and the Ageing Joneses," Economics Series 230, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  3. Wendner, Ronald, 2009. "Conspicuous Consumption and Overlapping Generations," MPRA Paper 15527, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Wendner, Ronald, 2008. "Externalities in a Model of Perpetual Youth with Age-Dependent Productivity," MPRA Paper 11335, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-11-27.

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