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Liquidity effects and habit formation in a sticky price model

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  • Yongseung Jung
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    This paper sets up a sticky price model with external habit formations. It shows that the cross-correlation between output and interest rates as well as prices match the data well when there is habit formation. Consumption as well as output display a hump-shaped response to a positive monetary shock when there is habit formation. The paper also shows that the sticky price model with Abel's (1990, 1999) external habit formation succeeds in generating liquidity effects.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/1016873042000299972
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    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 18 (2001)
    Issue (Month): 4 ()
    Pages: 521-546

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    Handle: RePEc:taf:intecj:v:18:y:2001:i:4:p:521-546
    DOI: 10.1080/1016873042000299972
    Contact details of provider: Web page: http://www.tandfonline.com/RIEJ20

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