Habit Formation in an Interdependent World Economy
In a two-country world economy, consumption-habit dynamics in one country are affected, due to endogenous interest rate adjustments, by the other country's habits and preferences. External indebtedness depends crucially on international differences in habit-adjusted net output less habitual living standard. Interest rate adjustments enlarge the consumption impact of an income shock. Consistently with the empirical facts, the habit parameter of a large country, therefore, would be underestimated, and the current account volatility overestimated, if estimated using a small-country model. An increase in fiscal spending in one country can benefit the country and harm the neighbor due to intertemporal terms-of-trade effects.
|Date of creation:||Sep 2004|
|Date of revision:||Jul 2008|
|Contact details of provider:|| Postal: 6-1 Mihogaoka, Ibaraki, Osaka 567-0047|
Web page: http://www.iser.osaka-u.ac.jp/index-e.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael B. Devereux & Shouyong Shi, 1989.
"Capital Accumulation and the Current Account in a Two-Country Model,"
761, Queen's University, Department of Economics.
- Devereux, Michael B. & Shi, Shouyong, 1991. "Capital accumulation and the current account in a two-country model," Journal of International Economics, Elsevier, vol. 30(1-2), pages 1-25, February.
- Gruber, Joseph W., 2004. "A present value test of habits and the current account," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1495-1507, October.
- Díaz, Antonia & Ríos Rull, José Víctor & Pijoan Mas, Josep, 2001.
"Habit formation: implications for the wealth distribution,"
UC3M Working papers. Economics
we015114, Universidad Carlos III de Madrid. Departamento de Economía.
- Diaz, Antonia & Pijoan-Mas, Josep & Rios-Rull, Jose-Victor, 2003. "Precautionary savings and wealth distribution under habit formation preferences," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1257-1291, September.
- Stephen J. Turnovsky & Marcelo Bianconi, 1992.
"The International Transmission of Tax Policies in a Dynamic World Economy,"
NBER Working Papers
4086, National Bureau of Economic Research, Inc.
- Turnovsky, Stephen J & Bianconi, Marcelo, 1992. "The International Transmission of Tax Policies in a Dynamic World Economy," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 49-72, November.
- 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.
- G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
- Ikeda, S. & Gombi, I., 1995.
"Habits, Costly Investment, and Current Account Dynamics,"
ISER Discussion Paper
0442, Institute of Social and Economic Research, Osaka University.
- Ikeda, Shinsuke & Gombi, Ichiro, 1999. "Habits, costly investment, and current account dynamics," Journal of International Economics, Elsevier, vol. 49(2), pages 363-384, December.
- John Y. Campbell & John H. Cochrane, 1994.
"By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior,"
CRSP working papers
412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
- John Y. Campbell & John H. Cochrane, 1995. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Papers 4995, National Bureau of Economic Research, Inc.
- Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
- Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380.
- Christopher D. Carroll & Jody Overland & David N. Weil, 1995.
"Saving and growth with habit formation,"
Finance and Economics Discussion Series
95-42, Board of Governors of the Federal Reserve System (U.S.).
- Christopher D. Carroll & Jody Overland & David N. Weil, 2000. "Mathematica code for 'Saving and Growth with Habit Formation' and 'Comparison Utility in a Growth Model'," QM&RBC Codes 43, Quantitative Macroeconomics & Real Business Cycles.
- Arman Mansoorian, 1993. "Tariffs, Habit Persistence, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 194-207, February.
- Ikeda, Shinsuke & Ono, Yoshiyasu, 1992. "Macroeconomic Dynamics in a Multi-country Economy: A Dynamic Optimization Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 629-44, August.
- D. Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
- Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
- Bianconi, Marcelo, 2003.
"Fiscal Policy and the Terms of Trade in an Analytical Two-Country Dynamic Model,"
International Tax and Public Finance,
Springer;International Institute of Public Finance, vol. 10(1), pages 25-41, January.
- Marcelo Bianconi, 2003. "Fiscal Policy and the Terms of Trade in an Analytical Two-Country Dynamic Model," Discussion Papers Series, Department of Economics, Tufts University 0302, Department of Economics, Tufts University.
- Marcelo Bianconi & Stephen J. Turnovsky, 1997. "International Effects of Government Expenditure in Interdependent Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 57-84, February.
- Karayalcin, Cem, 1996. "Stock Markets, Adjustment Costs and the International Transmission of Shocks," Economica, London School of Economics and Political Science, vol. 63(252), pages 599-610, November.
When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:0619. 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: (Fumiko Matsumoto)
If references are entirely missing, you can add them using this form.