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Consumption dynamics in general equilibrium

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  • Hall, Jamie

Abstract

This paper explores the role of consumption habits using an estimated nonlinear dynamic stochastic general equilibrium (DSGE) model with heteroscedastic shocks. It finds that habits interact with time-varying volatility to produce a better and more plausible fit to the data. They accentuate the nonlinear character of the simple New Keynesian model to produce asymmetries between positive and negative shocks. In general equilibrium, these effects are transmitted as much through inflation as through consumption itself.

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File URL: http://mpra.ub.uni-muenchen.de/43933/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43933.

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Date of creation: Nov 2012
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Handle: RePEc:pra:mprapa:43933

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Keywords: New Keynesian; habits; particle filter; heteroscedastic;

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  23. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
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