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

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  • Mansoorian Arman
  • Neaime Simon

Abstract

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
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    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.

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    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

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