IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Habit Formation In An Interdependent World Economy

  • Ikeda, Shinsuke
  • Gombi, Ichiro

In a two-country world economy, consumption-habit dynamics in one country are affected, due to endogenous interest rate adjustments, by the other country's habits and preferences. External indebtedness depends crucially on international differences in habit-adjusted net output less habitual living standard. Interest rate adjustments enlarge the consumption impact of an income shock. Consistently with the empirical facts, the habit parameter of a large country, therefore, would be underestimated, and the current account volatility overestimated, if estimated using a small-country model. An increase in fiscal spending in one country can benefit the country and harm the neighbor due to intertemporal terms-of-trade effects.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: link to article abstract page
Download Restriction: no

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 13 (2009)
Issue (Month): 04 (September)
Pages: 477-492

in new window

Handle: RePEc:cup:macdyn:v:13:y:2009:i:04:p:477-492_08
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380.
  2. Karayalcin, Cem, 1996. "Stock Markets, Adjustment Costs and the International Transmission of Shocks," Economica, London School of Economics and Political Science, vol. 63(252), pages 599-610, November.
  3. repec:ner:carlos:info:hdl:10016/258 is not listed on IDEAS
  4. Josep Pijoan-Mas 2 & Antonia Díaz & José-Víctor Ríos-Rull, 2001. "Habit Formation: Inplications For The Wealth Distribution," Economics Working Papers we015114, Universidad Carlos III, Departamento de Economía.
  5. Bianconi, Marcelo, 2003. "Fiscal Policy and the Terms of Trade in an Analytical Two-Country Dynamic Model," International Tax and Public Finance, Springer, vol. 10(1), pages 25-41, January.
  6. Ikeda, Shinsuke & Ono, Yoshiyasu, 1992. "Macroeconomic Dynamics in a Multi-country Economy: A Dynamic Optimization Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 629-44, August.
  7. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
  8. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series 95-42, Board of Governors of the Federal Reserve System (U.S.).
  9. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
  10. Turnovsky, Stephen J & Bianconi, Marcelo, 1992. "The International Transmission of Tax Policies in a Dynamic World Economy," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 49-72, November.
  11. Marcelo Bianconi & Stephen J. Turnovsky, 1997. "International Effects of Government Expenditure in Interdependent Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 57-84, February.
  12. Ikeda, Shinsuke & Gombi, Ichiro, 1999. "Habits, costly investment, and current account dynamics," Journal of International Economics, Elsevier, vol. 49(2), pages 363-384, December.
  13. Michael B. Devereux & Shouyong Shi, 1989. "Capital Accumulation and the Current Account in a Two-Country Model," Working Papers 761, Queen's University, Department of Economics.
  14. Arman Mansoorian, 1993. "Tariffs, Habit Persistence, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 194-207, February.
  15. Gruber, Joseph W., 2004. "A present value test of habits and the current account," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1495-1507, October.
  16. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June.
  17. Davide Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:13:y:2009:i:04:p:477-492_08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.