Internal and external habits and news-driven business cycles

Kengo Nutahara

MPRA Paper from University Library of Munich, Germany

Abstract: In many applications of habit persistence to macroeconomics, it is of little significance whether habits are internal or external. In this paper, it is shown that the distinction between internal and external habits is important in a situation wherein a shock is news about the future. An internal habit can be a source of news-driven business cycles, positive comovement in consumption, labor, investment, and output from the news about the future, whereas an external habit cannot.

Keywords: Habit persistence; internal habit; external habit; news-driven business cycles (search for similar items in EconPapers)
JEL-codes: E32 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2009-01-06
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:12550

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