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Habit persistence and stagnation

  • Johdo, Wataru
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    Using a money-in-the-utility function model that incorporates habit formation in consumption, we consider the question of how allowing for habit formation affects the possibility of a persistent shortage of consumption. We then contrast the model without habits with a model with habits. The main findings of our analysis are that i) when the degree of habit formation is important, a high degree of habit persistence opens up the possibility of a shortage of consumption, and ii) in the steady state with stagnation, the equilibrium consumption in the model with habit formation is smaller than the corresponding consumption without habits.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0264-9993(09)00074-1
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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 26 (2009)
    Issue (Month): 5 (September)
    Pages: 1110-1114

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    Handle: RePEc:eee:ecmode:v:26:y:2009:i:5:p:1110-1114
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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