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Habits And Durability In Consumption And The Effects Of Exchange Rate Policies

  • Mansoorian Arman
  • Neaime Simon
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    The effects of exchange rate policies are worked out in a model in which consumption goods are durable, and money enters the utility function. The interaction of habits and durability results in a non-monotonic adjustment of consumption expenditures, and the current account. As money does not exhibit durability, its dynamics are montonic, and determined mainly by habits effects. Hence, an increase in the rate of depreciation of the domestic currency will very likely lead to a nomonotonic adjustment of consumption and the current account, while the adjustment of real money holdings will be monotonic [F31, F32, F41]

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168730200000016
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    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 16 (2002)
    Issue (Month): 2 ()
    Pages: 97-114

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    Handle: RePEc:taf:intecj:v:16:y:2002:i:2:p:97-114
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    1. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October.
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    3. Partha Sen & Stephen J. Turnovsky, 1988. "Deterioration of the Terms of Trade and Capital Accumulation: A Reexamination of the Laursen-Metzler Effect," NBER Working Papers 2616, National Bureau of Economic Research, Inc.
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    6. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
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    9. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-31, November.
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