Business Cycle Implications of Internal Consumption Habit for New Keynesian Models

Takashi Kano () and James Nason ()

No CIRJE-F-623, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper studies the implications of internal consumption habit for propagation and monetary transmission in new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian methods are employed to evaluate the role of internal consumption habit in NKDSGE model propagation and monetary transmission. Simulation experiments show that internal consumption habit often improves NKDSGE model fit to output and consumption growth spectra by dampening business cycle periodicity. Nonetheless, habit NKDSGE model fit is vulnerable to the nominal rigidity, to the choice of monetary policy rule, to the frequencies used for evaluation, and to spectra identified by permanent productivity shocks.

New Economics Papers: this item is included in nep-bec, nep-cba, nep-cmp, nep-dge and nep-mac
Date: 2009-06

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Related works:
Working Paper: Business cycle implications of internal consumption habit for New Keynesian models (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:tky:fseres:2009cf623

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