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Internal and external habits and news-driven business cycles

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  • Nutahara, Kengo

Abstract

In many applications of habit persistence to macroeconomics, it is of little significance whether habits are internal or external. In this paper, it is shown that the distinction between internal and external habits is important in a situation wherein a shock is news about the future. An internal habit can be a source of news-driven business cycles, positive comovement in consumption, labor, investment, and output from the news about the future, whereas an external habit cannot.

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File URL: http://mpra.ub.uni-muenchen.de/19056/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12550.

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Date of creation: 06 Jan 2009
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Handle: RePEc:pra:mprapa:12550

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Keywords: Habit persistence; internal habit; external habit; news-driven business cycles;

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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers, National Bureau of Economic Research, Inc 14215, National Bureau of Economic Research, Inc.
  2. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series, Federal Reserve Bank of Chicago WP-99-14, Federal Reserve Bank of Chicago.
  3. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 586-606, June.
  4. Ippei Fujiwara & Yasuo Hirose & Mototsugu Shintani, 2011. "Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43(1), pages 1-29, 02.
  5. Uribe, Martin, 2002. "The price-consumption puzzle of currency pegs," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(3), pages 533-569, April.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers, National Bureau of Economic Research, Inc 8403, National Bureau of Economic Research, Inc.
  7. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series, European Central Bank 0955, European Central Bank.
  8. KOBAYASHI Keiichiro & NUTAHARA Kengo, 2008. "Nominal Rigidities, News-Driven Business Cycles, and Monetary Policy," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 08018, Research Institute of Economy, Trade and Industry (RIETI).
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Cited by:
  1. Robert Ambrisko & Jan Babecky & Jakub Rysanek & Vilem Valenta, 2012. "Assessing the Impact of Fiscal Measures on the Czech Economy," Working Papers, Czech National Bank, Research Department 2012/15, Czech National Bank, Research Department.
  2. Benjamin Born & Alexandra Peter & Johannes Pfeifer, 2011. "Fiscal News and Macroeconomic Volatility," Bonn Econ Discussion Papers, University of Bonn, Germany bgse08_2011, University of Bonn, Germany.
  3. Lambertini, Luisa & Mendicino, Caterina & Punzi, Maria Teresa, 2010. "Expectations-Driven Cycles in the Housing Market," MPRA Paper, University Library of Munich, Germany 26128, University Library of Munich, Germany.
  4. Ryo Jinnai, 2011. "News Shocks, Price Levels, and Monetary Policy," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd10-173, Institute of Economic Research, Hitotsubashi University.
  5. Jang-Ting Guo & Anca-Ioana Sirbu & Mark Weder, 2012. "News about Aggregate Demand and the Business Cycle," Working Papers, Department of Economics, West Virginia University 12-02, Department of Economics, West Virginia University.
  6. Nutahara, Kengo, 2010. "Note on nominal rigidities and news-driven business cycles," MPRA Paper, University Library of Munich, Germany 24112, University Library of Munich, Germany.

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