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The overlapping generations model with habit formation: A comment

  • Hiraguchi, Ryoji

Bunzel [2006. Habit persistence, money, and overlapping generations. Journal of Economic Dynamics and Control 30, 2425-2445] studies an overlapping generations model with habit formation. This comment argues that the interior paths analyzed in Propositions 4 and 5 from that paper are not global maxima. Specifically, if the coefficient of relative risk aversion is less than one, a corner solution is optimal. This correction, however, does not change Bunzel's conclusion, ruling out the possibility of higher order fluctuations.

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File URL: http://www.sciencedirect.com/science/article/B6V85-4S7JFTB-3/2/c14b9cdbdb62e7250598a707df373f19
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 12 (December)
Pages: 4016-4017

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:12:p:4016-4017
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  1. Bunzel, Helle, 2006. "Habit Persistence, Money, and Overlapping Generations," Staff General Research Papers 12405, Iowa State University, Department of Economics.
  2. Alonso-Carrera, Jaime & Caballe, Jordi & Raurich, Xavier, 2005. "Growth, habit formation, and catching-up with the Joneses," European Economic Review, Elsevier, vol. 49(6), pages 1665-1691, August.
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