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

A two sector endogenous growth model with habit formation

  • Hiraguchi, Ryoji

In this paper, we study an endogenous growth model with physical and human capital in which consumption habits enter the utility function multiplicatively. We show that although the utility function with multiplicative habits is nonconcave and unbounded, an interior optimal growth path still exists, it is uniquely determined and it converges to a balanced growth path. We also find that habit formation in consumption lowers the convergence speed of the optimal path toward the balanced growth path.

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:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 4 (April)
Pages: 430-441

in new window

Handle: RePEc:eee:dyncon:v:35:y:2011:i:4:p:430-441
Contact details of provider: 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. Jaime Alonso-Carrera & Jordi Caball?Author-Email: & Xavier Raurich, . "Growth, Habit Formation, and Catching-up\ with the Joneses," UFAE and IAE Working Papers 497.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. LE VAN, Cuong & MORHAIM, Lisa, 2001. "Optimal growth models with bounded or unbounded returns: a unifying approach," CORE Discussion Papers 2001034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Kazuo Nishimura & Tapan Mitra, 2004. "Intertemporal Complementarity and Optimality: A Study of a Two-Dimensional Dynamical System," Econometric Society 2004 Far Eastern Meetings 543, Econometric Society.
  4. Carrasco, Raquel & Labeaga Azcona, J Maria & López-Salido, J David, 2002. "Consumption and Habits: Evidence from Panel Data," CEPR Discussion Papers 3520, C.E.P.R. Discussion Papers.
  5. Christopher D Carroll & Jody Overland & David N Weil, 1997. "Comparison Utility in a Growth Model," Economics Working Paper Archive 387, The Johns Hopkins University,Department of Economics.
  6. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
  7. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
  8. Aldo Rustichini & Paolo Siconolfi, 2004. "Growth in economies with non convexities: sunspots and lottery equilibria," Economic Theory, Springer, vol. 24(3), pages 701-726, October.
  9. 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.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  11. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Working Papers UWEC-2004-09-P, University of Washington, Department of Economics, revised Jan 2004.
  12. Ryoji Hiraguchi, 2004. "Some Foundations for Multiplicative Habits Models," Economics Working Paper Archive 516, The Johns Hopkins University,Department of Economics.
  13. 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.).
  14. Cuong Le Van & H. Cagri Saglam, 2004. "Optimal growth models and the Lagrange multiplier," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118996, HAL.
  15. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  16. Duernecker, Georg, 2007. "Growth Effects of Consumption Jealousy in a Two-Sector Model," Economics Series 201, Institute for Advanced Studies.
  17. Cohen, Daniel & Soto, Marcelo, 2001. "Growth and Human Capital: Good Data, Good Results," CEPR Discussion Papers 3025, C.E.P.R. Discussion Papers.
  18. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu, 2005. "Fluctuations in Convex Models of Endogenous Growth II: Business Cycle Properties," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 805-828, October.
  19. Christopher D Carroll, 2000. "Solving Consumption Models with Multiplicative Habits," Economics Working Paper Archive 421, The Johns Hopkins University,Department of Economics.
  20. Takashi Kamihigashi, 2002. "A simple proof of the necessity of the transversality condition," Economic Theory, Springer, vol. 20(2), pages 427-433.
  21. Chris Papageorgiou & Fidel Perez-Sebastian, 2007. "Is the Asymptotic Speed of Convergence a Good Proxy for the Transitional Growth Path?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 1-24, 02.
  22. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
  23. Angel de la Fuente & Rafael Doménech, 2006. "Human Capital in Growth Regressions: How Much Difference Does Data Quality Make?," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 1-36, 03.
  24. Gómez Manuel A., 2007. "Equilibrium Efficiency in the Ramsey Model with Habit Formation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(2), pages 1-34, May.
  25. Weder, Mark, 2000. "Can Habit Formation Solve the Consumption Anomaly in the Two-Sector Business Cycle Model?," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 433-444, July.
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:eee:dyncon:v:35:y:2011:i:4:p:430-441. 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: (Zhang, Lei)

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.