Habit Formation and the Gains from Price Stability
A counter-intuitive result from consumer theory is that consumers facing stable prices will benefit from a mean-preserving spread of those prices. This article explores a new explanation for why the common intuition that price volatility is undesirable may be correct: the presence of habit formation in consumption. If prices are fluctuating, and preferences depend on past consumption, in every period the most favored goods can also be the most expensive ones, with negative consequences for both welfare and nutrition. (JEL codes: E2, O1, D9, I15) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: email@example.com, Oxford University Press.
Volume (Year): 58 (2012)
Issue (Month): 2 (June)
|Contact details of provider:|| Postal: |
Phone: +49 (89) 9224-0
Fax: 01865 267 985
Web page: http://cesifo.oxfordjournals.org/
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:cesifo:v:58:y:2012:i:2:p:373-384. 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: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.