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

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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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    References listed on IDEAS

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    Cited by:

    1. Tomiyuki Kitamura & Tamon Takamura, 2022. "Output Comovement and Inflation Dynamics in a Two‐Sector Model with Durable Goods: The Role of Sticky Information and Heterogeneous Factor Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 313-331, February.
    2. 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.

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    More about this item

    Keywords

    Nonhomothetic preferences; habit formation; non-durable goods; durable goods; sectoral comovement; New Keyesian model;
    All these keywords.

    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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