Habit Formation, Interest-Rate Control and Equilibrium Determinacy

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Habit Formation, Interest-Rate Control and Equilibrium Determinacy

Author Info

Seiya Fujisaki () (Graduate School of Economics, Osaka University)

Abstract

We 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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Publisher Info
Paper 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.

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Length: 26 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:osk:wpaper:0923

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: 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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Other versions:
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- Qinglai Meng & Chong K. Yip, 2002. "Investment, Interest Rate Rules, and Equilibrium Determinacy," Departmental Working Papers _138, Chinese University of Hong Kong, Department of Economics.
Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Monetary Policy and Multiple Equilibria," American Economic Review, American Economic Association, vol. 91(1), pages 167-186, March. [Downloadable!] (restricted)
Other versions:
- Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers 2316, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Weder, Mark, 2000. "Can Habit Formation Solve the Consumption Anomaly in the Two-Sector Business Cycle Model?," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 433-444, July. [Downloadable!] (restricted)
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