Monetary Policy, Rule-of-Thumb Consumers and External Habits: An International Comparison

Giovanni Di Bartolomeo (), Lorenza Rossi () and Massimiliano Tancioni ()
Additional contact information
Massimiliano Tancioni: University of Rome La Sapienza

No 727, Working Papers from University of Crete, Department of Economics

Abstract: This paper extends the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model to agents who cannot smooth consumption (i.e. spenders) and are affected by external consumption habits. Although these assumptions are not new, their joint consideration strongly affects some theoretical and empirical results addressed by the recent literature. By deriving closed-form solutions, we identify different demand regimes and show that they are characterized by specific features regarding dynamic stability and monetary policy effectiveness. We also evaluate our model by stochastic simulations obtained from the Bayesian parameters estimates for the G7 economies. From posterior impulse response we address the empirical relevance of the different regimes and provide comparative evidence on the asymmetric effects of monetary policy, resulting from the heterogeneity of the estimated model structures.

Keywords: Rule-of-thumb; habits; monetary policy transmission; determinacy; New Keynesian (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-10-23

Downloads: (external link)
http://economics.soc.uoc.gr/wpa/docs/DRT_wp_crete.pdf First version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:crt:wpaper:0727

Access Statistics for this paper

More papers in Working Papers from University of Crete, Department of Economics
Contact information at EDIRC.
Series data maintained by Kostis Pigounakis ().