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Habit Persistence and Money in the Utility Function

Listed author(s):
  • Stéphane Auray

    ()

    (Université du Québec à Montréal and CIRPÉE)

  • Patrick Fève

    ()

    (Université de Toulouse, CNRS-GREMAQ and IDEI)

  • Fabrice Collard

    ()

    (Université de Toulouse, CNRS-GREMAQ and IDEI)

The paper introduces habit persistence in consumption decisions in an infinitely-lived agents monetary model where money enters in the utility of the agent. In this case, we show that the equilibrium is saddle path whereas Auray, Collard and Fève [2004] showed that the interplay between habit persistence and cash-in-advance generates real indeterminacy. These two distinct but commonly used framework do not lead to the same dynamic properties, therefore.

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File URL: http://www.accessecon.com/pubs/EB/2004/Volume5/EB-04E00003A.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 5 (2004)
Issue (Month): 10 ()
Pages: 1-9

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Handle: RePEc:ebl:ecbull:eb-04e00003
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  1. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Timing and real indeterminacy in monetary models," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 285-298, April.
  2. Matsuyama, Kiminori, 1990. "Sunspot equilibria (rational bubbles) in a model of money-in-the-utility-function," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 137-144, January.
  3. Braun, Phillip A. & Constantinides, George M. & Ferson, Wayne E., 1993. "Time nonseparability in aggregate consumption : International evidence," European Economic Review, Elsevier, vol. 37(5), pages 897-920, June.
  4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  5. Auray, Stéphane & Collard, Fabrice & Fève, Patrick, 1999. "Habit Persistence and Beliefs," IDEI Working Papers 108, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001.
  6. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October.
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