Business cycle implications of internal consumption habit for new Keynesian models

Takashi Kano and James Nason

No 12-30, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We study the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of NKDSGE models to match the spectra of output and consumption growth. Nonetheless, the fit of NKDSGE models with internal consumption habit is susceptible to the sources of nominal rigidity, to spectra identified by permanent productivity shocks, to the choice of monetary policy rule, and to the frequencies used for evaluation. These vulnerabilities indicate that the specification of NKDSGE models is fragile.

Keywords: Consumption (Economics); Keynesian economics (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Business Cycle Implications of Internal Consumption Habit for New Keynesian Models (2014)
Working Paper: Business Cycle Implications of Internal Consumption Habit for New Keynesian Models (2012)
Working Paper: Business Cycle Implications of Internal Consumption Habit for New Keynesian Models (2010)
Working Paper: Business Cycle Implications of Internal Consumption Habit for New Keynesian Model (2009)
Working Paper: Business cycle implications of internal consumption habit for New Keynesian models (2009)
Working Paper: Business Cycle Implications of Internal Consumption Habit for New Keynesian Models (2009)
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