Habit Formation, Interest-Rate Control and Equilibrium Determinacy
AbstractWe examine macroeconomic stability of a monetary economy with habit formation in consumption. We assume that monetary authority controls the rate of nominal interest in response to inflation and output gap. We show that in the presence of habit persistence not only active but also passive monetary policy can generate equilibrium determinacy under empirically plausible values of the elasticity of intertemporal substitution in felicity.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 09-23.
Length: 26 pages
Date of creation: Aug 2009
Date of revision:
equilibrium determinacy; habit formation; Taylor rule; endogenous labor.;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-16 (All new papers)
- NEP-CBA-2009-08-16 (Central Banking)
- NEP-DGE-2009-08-16 (Dynamic General Equilibrium)
- NEP-MAC-2009-08-16 (Macroeconomics)
- NEP-MON-2009-08-16 (Monetary Economics)
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