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

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  • Masako Ikefuji

    ()
    (Institute of School and Economic Research, Osaka University)

  • Kazuo Mino

    ()
    (Institute of Economic Research, Kyoto University)

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 Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 676.

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Length: 32pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:kyo:wpaper:676

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Keywords: internal habits formation; external habit formation; overlapping generations economy; long-run growth;

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References

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  1. Ronald Wendner, 2002. "Capital Accumulation and Habit Formation," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-10.
  2. 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.
  3. Uribe, Martin, 2002. "The price-consumption puzzle of currency pegs," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 533-569, April.
  4. Kazuo Mino, 2008. "Growth And Bubbles With Consumption Externalities," The Japanese Economic Review, Japanese Economic Association, vol. 59(1), pages 33-53.
  5. Wendner, Ronald, 2003. "Do habits raise consumption growth?," Research in Economics, Elsevier, vol. 57(2), pages 151-163, June.
  6. Mino, Kazuo, 2006. "Consumption Externalities and Capital Accumulation in an Overlapping Generations Economy," MPRA Paper 17016, University Library of Munich, Germany.
  7. Lahiri, Amartya & Puhakka, Mikko, 1998. "Habit Persistence in Overlapping Generations Economies under Pure Exchange," Journal of Economic Theory, Elsevier, vol. 78(1), pages 176-186, January.
  8. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
  9. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  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. 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.
  12. repec:ebl:ecbull:v:4:y:2002:i:7:p:1-10 is not listed on IDEAS
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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.
  2. Gori, Luca & Sodini, Mauro, 2012. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," MPRA Paper 35942, University Library of Munich, Germany.

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