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Consumption dynamics in general equilibrium

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  • Hall, Jamie

Abstract

This paper explores the role of consumption habits using an estimated nonlinear dynamic stochastic general equilibrium (DSGE) model with heteroscedastic shocks. It finds that habits interact with time-varying volatility to produce a better and more plausible fit to the data. They accentuate the nonlinear character of the simple New Keynesian model to produce asymmetries between positive and negative shocks. In general equilibrium, these effects are transmitted as much through inflation as through consumption itself.

Suggested Citation

  • Hall, Jamie, 2012. "Consumption dynamics in general equilibrium," MPRA Paper 43933, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:43933
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    File URL: https://mpra.ub.uni-muenchen.de/43933/1/MPRA_paper_43933.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sergey Ivashchenko & Rangan Gupta, 2017. "Near-Rational Expectations: How Far are Surveys from Rationality?," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 60(1), pages 1-27.
    2. Sergey Ivashchenko, 2014. "Forecasting in a Non-Linear DSGE Model," EUSP Department of Economics Working Paper Series Ec-02/14, European University at St. Petersburg, Department of Economics.
    3. Sergey Ivashchenko, 2014. "Near-Rational Expectations: How Far Are Surveys from Rationality?," EUSP Department of Economics Working Paper Series Ec-06/14, European University at St. Petersburg, Department of Economics.

    More about this item

    Keywords

    New Keynesian; habits; particle filter; heteroscedastic;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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