IDEAS home Printed from
   My bibliography  Save this article

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


  • Mansoorian Arman
  • Neaime Simon


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]

Suggested Citation

  • Mansoorian Arman & Neaime Simon, 2002. "Habits And Durability In Consumption And The Effects Of Exchange Rate Policies," International Economic Journal, Taylor & Francis Journals, vol. 16(2), pages 97-114.
  • Handle: RePEc:taf:intecj:v:16:y:2002:i:2:p:97-114 DOI: 10.1080/10168730200000016

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    1. Mansoorian, Arman, 1996. "On the Macroeconomic Policy Implications of Habit Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 119-129, February.
    2. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
    3. Fischer, Stanley, 1979. "Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica, Econometric Society, vol. 47(6), pages 1433-1439, November.
    4. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, July.
    5. Sen, Partha & Turnovsky, Stephen J., 1989. "Deterioration of the terms of trade and capital accumulation: A re-examination of the Laursen-Metzler effect," Journal of International Economics, Elsevier, vol. 26(3-4), pages 227-250, May.
    6. Obstfeld, Maurice, 1981. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1142-1161, December.
    7. 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.
    8. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    9. Djajic, Slobodan, 1982. "Balance-of-payments dynamics and exchange-rate management," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 179-191, January.
    10. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
    11. Mansoorian, Arman, 1998. "Habits and durability in consumption, and the dynamics of the current account," Journal of International Economics, Elsevier, vol. 44(1), pages 69-82, February.
    12. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
    13. Obstfeld, Maurice, 1981. "Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations," American Economic Review, American Economic Association, vol. 71(2), pages 217-221, May.
    14. Calvo, Guillermo A., 1981. "Devaluation: Levels versus rates," Journal of International Economics, Elsevier, vol. 11(2), pages 165-172, May.
    15. 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 811-831, November.
    16. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    17. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-538, June.
    18. David Backus & Patrick Kehoe & Finn Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the J-curve revisited," Discussion Paper / Institute for Empirical Macroeconomics 65, Federal Reserve Bank of Minneapolis.
    19. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    20. Harl E. Ryder & Geoffrey M. Heal, 1973. "Optimal Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Oxford University Press, vol. 40(1), pages 1-31.
    21. Heaton, John, 1995. "An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications," Econometrica, Econometric Society, vol. 63(3), pages 681-717, May.
    22. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    23. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Neaime Simon, 2005. "Financial Market Integration and Macroeconomic Volatility in the MENA Region: An Empirical Investigation," Review of Middle East Economics and Finance, De Gruyter, vol. 3(3), pages 59-83, December.
    2. Simon Neaime, 2008. "Monetary Policy Transmission and Targeting Mechanisms in the MENA Region," Working Papers 395, Economic Research Forum, revised 03 Jan 2008.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:16:y:2002:i:2:p:97-114. 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: (Chris Longhurst). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.