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Nonhomothetic Preferences with Habit Formation in Nondurable and Durable Consumption: Implications for Sectoral Comovement

Author

Listed:
  • Kevin x.d. Huang

    () (Vanderbilt University)

  • Engin Volkan

    () (Istanbul Bilgi University)

  • M. ege Yazgan

    () (Istanbul Bilgi University)

Abstract

We argue that nonhomothetic preferences with habit formation in nondurable and durable consumption can be a driving force behind sectoral comovement in production. We make this point by augmenting a two-sector New Keyesian model a la Barsky, House and Kimball (2007) with these two real features of the data. Our estimates imply that these two features interact to generate an empirically important mechanism that propagates monetary shocks to produce significant cross-sector comovement

Suggested Citation

  • Kevin x.d. Huang & Engin Volkan & M. ege Yazgan, 2013. "Nonhomothetic Preferences with Habit Formation in Nondurable and Durable Consumption: Implications for Sectoral Comovement," Vanderbilt University Department of Economics Working Papers 13-00002, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:13-00002
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    File URL: http://www.accessecon.com/pubs/VUECON/VUECON-13-00013.pdf
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    References listed on IDEAS

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    7. Ludema, Rodney D. & Mayda, Anna Maria, 2009. "Do countries free ride on MFN?," Journal of International Economics, Elsevier, vol. 77(2), pages 137-150, April.
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    Cited by:

    1. Chen, Been-Lon & Liao, Shian-Yu, 2014. "Capital, credit constraints and the comovement between consumer durables and nondurables," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 127-139.

    More about this item

    Keywords

    Nonhomothetic preferences; habit formation; non-durable goods; durable goods; sectoral comovement; New Keyesian model;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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