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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
File Format: application/pdf
File Function: First version, 2007
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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
Date of revision:
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
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  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!] (restricted)
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  3. 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)
  4. Heijdra, Ben J. & Ligthart, Jenny E., 2006. "The Macroeconomic Dynamics Of Demographic Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 349-370, March. [Downloadable!]
    Other versions:
  5. 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:
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  7. 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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  9. 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!]
    Other versions:
  10. 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)
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  11. 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.
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  12. 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. Ben J. Heijdra & Ward E. Romp, 2006. "Ageing and Growth in the Small Open Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  17. 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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  18. 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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  19. 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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  20. Ben J. Heijdra & Ward E. Romp, 2007. "Retirement, Pensions, and Ageing," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  21. 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)
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  23. 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)
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  25. 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:
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