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Consumption habits and labor supply

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  • Graham, Liam

Abstract

Models with habit formation in consumption have proved useful in understanding a number of macroeconomic features. The key finding of this paper is that, when households can use their labor supply to smooth consumption, habit formation worsens a dynamic model's response to both monetary and technology shocks. Some of the counterfactual implications of a model with habit formation can be rectified by introducing credit constrained households.

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  • Graham, Liam, 2008. "Consumption habits and labor supply," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 382-395, March.
    • Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:382-395
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    Cited by:

    1. Richard McManus, 2013. "Austerity versus Stimulus: A DSGE Political Economy Explanation," Discussion Papers 13/09, Department of Economics, University of York.
    2. Boscá, J.E. & Doménech, R. & Ferri, J., 2011. "Search, Nash bargaining and rule-of-thumb consumers," European Economic Review, Elsevier, vol. 55(7), pages 927-942.
    3. Wataru Johdo, 2013. "Does monetary expansion improve welfare under habit formation?," Economics Bulletin, AccessEcon, vol. 33(3), pages 1959-1968.
    4. Seiya Fujisaki, 2009. "Habit Formation, Interest-Rate Control and Equilibrium Determinacy," Discussion Papers in Economics and Business 09-23, Osaka University, Graduate School of Economics.
    5. Richard McManus, 2013. ""We're all in this together"? A DSGE interpretation," Discussion Papers 13/08, Department of Economics, University of York.

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