International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition
AbstractThis paper presents a simple diagrammatic analysis of an open economy's external adjustment process under habit-forming individual preferences. The exposition focuses on the consumption side and aims to make transparent the linkage among wealth, past consumption experience, and current consumption. An extension of the standard representative-agent model to a growing economy of overlapping generations completes the paper. Under habit formation an agent's consumption exhibits a form of hysteresis, in that his current consumption depends on his past consumption experience as well as initial assets. In the overlapping-generations model aggregate hysteresis disappears in the long run.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4094.
Date of creation: Jan 1993
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- Obstfeld, Maurice, 1992. "International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 32-48, November.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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