A Look at Habit Persistence over Business Cycles

Yongseung Jung ()
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Yongseung Jung: Kyung Hee University

Economic Analysis (Quarterly), 2008, vol. 14, issue 3, 45-85

Abstract: This paper sets up a Calvo-type sticky price model as well as a Taylor-type sticky price model, internal habit formation and expenditure delays as in Bernanke et al. (1998). It shows that internal habit formation and expenditure delays improve the sticky price models in explaining the selected variables at nearly all frequencies. Consumption displays a hump-shaped response to a positive monetary shock when there is a moderate habit persistence with capital adjustment costs. However, the models have difficulty in generating the power spectrum of interest rates and its cross correlation with output, as seen in the data.

Keywords: Habit Formation; Leading Indicator; Monetary Policy; Power Spectrum; Sticky Price (search for similar items in EconPapers)
JEL-codes: E52 F31 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:bok:journl:v:14:y:2008:i:3:p:45-85

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