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.:
- 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.
- Jody Overland & Christopher D. Carroll & David N. Weil, 2000.
"Saving and Growth with Habit Formation,"
American Economic Review,
American Economic Association, vol. 90(3), pages 341-355, June.
- 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.
- Ikeda, Shinsuke & Gombi, Ichiro, 1999. "Habits, costly investment, and current account dynamics," Journal of International Economics, Elsevier, vol. 49(2), pages 363-384, December.
- Ikeda, S. & Gombi, I., 1995. "Habits, Costly Investment, and Current Account Dynamics," ISER Discussion Paper 0442, Institute of Social and Economic Research, Osaka University.
- 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.
- 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.
- 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.
- Campbell, John & Cochrane, John H., 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
- 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.
- 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.
- Michael B. Devereux & Shouyong Shi, 1989. "Capital Accumulation and the Current Account in a Two-Country Model," Working Papers 761, Queen's University, Department of Economics.
- 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.
- 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.
- 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.
- 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.
- 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, 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 629-644, August.
- Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380.
- Arman Mansoorian, 1993. "Tariffs, Habit Persistence, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 194-207, February.
- 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.
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 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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.