Habit Formation, Interest-Rate Control and Equilibrium Determinacy

Seiya Fujisaki ()
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Seiya Fujisaki: Graduate School of Economics, Osaka University

No 09-23, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We examine macroeconomic stability of a monetary economy with habit formation in consumption. We assume that monetary authority controls the rate of nominal interest in response to inflation and output gap. We show that in the presence of habit persistence not only active but also passive monetary policy can generate equilibrium determinacy under empirically plausible values of the elasticity of intertemporal substitution in felicity.

Keywords: equilibrium determinacy; habit formation; Taylor rule; endogenous labor. (search for similar items in EconPapers)
JEL-codes: E21 E52 O42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:0923

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