Habits and Endogenous Investment Fluctuations
AbstractThis paper envisages whether an external habit effect can produce indeterminate equilibrium paths thereby generating endogenous investment fluctuations. In an otherwise standard optimal growth model with leisure, we find that an external habit effect can cause endogenous investment fluctuations if there is a proper habit effect together with a proper intertemporal elasticity of substitution. In a calibrated version of the model, we find that endogenous investment fluctuations are plausible when the habit effect is negative with the "catching up with the Joneses"effect.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 730.
Date of creation: Oct 2010
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catching up with the Joneses; habit; indeterminacy; one-sector growth model;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-DGE-2010-10-23 (Dynamic General Equilibrium)
- NEP-MAC-2010-10-23 (Macroeconomics)
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