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Keeping up with the Ageing Joneses

  • Fisher, Walter H.

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

  • Heijdra, Ben J.

    (Department of Economics, University of Groningen, Groningen, The Netherlands)

In this paper we consider the implications of relative consumption externalities in the Blanchard-Yaari overlapping generations framework. Unlike most of the macroeconomic literature that studies this question, the differences between agents, and, thus, in their relative position, persist in equilibrium. We show in our fixed employment model that consumption externalities lower consumption and the capital stock in long-run equilibrium, a result in sharp contrast to the recent findings of Liu and Turnovsky (2005). In addition, we solve for the intertemporal path of the economy to investigate its response to demographic shocks, specifically, to permanent changes in the birth and death rates.

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Paper provided by Institute for Advanced Studies in its series Economics Series with number 204.

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Length: 26 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:ihs:ihsesp:204
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  1. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  2. Bettendorf, Leon J.H. & Heijdra, Ben J., 2006. "Population ageing and pension reform in a small open economy with non-traded goods," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2389-2424, December.
  3. repec:oup:restud:v:72:y:2005:i:1:p:21-42 is not listed on IDEAS
  4. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 47-80, 03.
  5. Walter H. Fisher & IHS-Vienna & Franz X. Hof, 2006. "The Quest for Status and Endogenous Labor Supply: The Relative Wealth Framework," Computing in Economics and Finance 2006 60, Society for Computational Economics.
  6. Heijdra, Ben J. & Ligthart, Jenny E., 2006. "The Macroeconomic Dynamics Of Demographic Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 349-370, June.
  7. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  8. A. Bovenberg & Ben Heijdra, 2002. "Environmental Abatement and Intergenerational Distribution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(1), pages 45-84, September.
  9. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  10. Wen-Fang Liu & Stephen Turnovsky, 2003. "Consumption Externalities, Production Externalities, and the Accumulation of Capital," Working Papers UWEC-2002-13-P, University of Washington, Department of Economics, revised Nov 2003.
  11. Stephen J Turnovsky & Goncalo Monteiro, . "Consumption Externalities, Production Externalities and Efficient Capital Accumulation under Time Non-separable Preferences," Discussion Papers 05/08, Department of Economics, University of York.
  12. Ngo Van Long & Koji Shimomura, 2002. "Relative Wealth, Status Seeking, and Catching Up," CIRANO Working Papers 2002s-09, CIRANO.
  13. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  14. Heijdra, Ben J. & Romp, Ward E., 2005. "A Life-Cycle Overlapping-Generations Model of the Small Open Economy," Research Report 05C04, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  15. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February.
  16. Fisher, Walter H. & Hof, Franz X., 2001. "Status Seeking in the Small Open Economy," Economics Series 106, Institute for Advanced Studies.
  17. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October.
  18. Buiter, Willem H., 1984. "Fiscal Policy in Open, Interdependent Economies," CEPR Discussion Papers 28, C.E.P.R. Discussion Papers.
  19. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  20. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
  21. Ben J. Heijdra & Ward E. Romp, 2007. "Retirement, Pensions, and Ageing," CESifo Working Paper Series 1974, CESifo Group Munich.
  22. Corneo, Giacomo & Jeanne, Olivier, 2001. "On relative-wealth effects and long-run growth," Research in Economics, Elsevier, vol. 55(4), pages 349-358, December.
  23. Corneo, Giacomo & Jeanne, Olivier, 2001. " Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 283-93, June.
  24. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  25. Michael Rauscher, 1997. "Conspicuous consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 66(1), pages 35-42, February.
  26. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 1-90, Wharton School Rodney L. White Center for Financial Research.
  27. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  28. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  29. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  30. Frank, Robert H, 1997. "The Frame of Reference as a Public Good," Economic Journal, Royal Economic Society, vol. 107(445), pages 1832-47, November.
  31. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July.
  32. Fisher, Walter H., 2001. "Status Preference, Wealth, and Dynamics in the Open Economy," Economics Series 99, Institute for Advanced Studies.
  33. Calvo, Guillermo A & Obstfeld, Maurice, 1988. "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes," Econometrica, Econometric Society, vol. 56(2), pages 411-32, March.
  34. Ben J. Heijdra & Ward E. Romp, 2006. "Ageing and Growth in the Small Open Economy," CESifo Working Paper Series 1740, CESifo Group Munich.
  35. repec:oup:restud:v:40:y:1973:i:1:p:1-33 is not listed on IDEAS
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